Certified Residential Appraiser Practice Exam

What is the primary liability characteristic of a Limited Partnership?

1. All partners share equal liability

2. General partners are liable, limited partners are not

3. Only the limited partners are liable

4. No liability exists for any partners

The correct answer is: General partners are liable, limited partners are not

In a Limited Partnership, the primary liability characteristic is that general partners have full personal liability for the debts and obligations of the partnership, while limited partners are only liable to the extent of their investment in the partnership. This means that if the partnership incurs debts or faces lawsuits, the general partners' personal assets can be at risk, but the limited partners are generally protected from personal liability beyond their initial contribution. This structure allows limited partners to invest in the partnership while limiting their risk. The correct answer highlights this distinction, clarifying the different levels of liability faced by the partners within this business arrangement. Limited partners enjoy certain protections and do not participate in the day-to-day management of the business, further reinforcing the concept that their risk is limited. This understanding is crucial for anyone involved in or considering forming a Limited Partnership.