A general partnership is a business arrangement where two or more individuals agree to share in the profits and losses of a business venture. Each partner contributes to the business in terms of capital, labor, or skill, and each partner has unlimited personal liability for the debts and obligations of the partnership.
Which of the following best describes a general partnership?
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A) A business owned by a single individual is a sole proprietorship. B) A business with limited liability for its owners is either a corporation or a limited liability company (LLC). C) A general partnership is a business arrangement where two or more individuals share profits and losses. D) A separate legal entity owned by shareholders is a corporation.
In a general partnership, what is the extent of each partner's liability for the debts and obligations of the partnership?
A) Limited liability is a characteristic of corporations, LLCs, and limited partners in a limited partnership. B) In a general partnership, each partner has unlimited liability for the debts and obligations of the partnership. C) Liability limited to their capital contribution is a characteristic of limited partners in a limited partnership. D) No liability does not apply to any type of business entity.
Which of the following is NOT a characteristic of a general partnership?
A) Profit and loss sharing is a characteristic of general partnerships, as partners agree to share in the profits and losses of the business. B) Fiduciary duty among partners is a characteristic of general partnerships, as partners are legally obligated to act in the best interest of the partnership and other partners. C) Limited liability for partners is NOT a characteristic of general partnerships; instead, partners have unlimited liability for the debts and obligations of the partnership. D) Partnership taxation is a characteristic of general partnerships, as profits and losses are passed through to the partners' individual tax returns.
In the early 1900s, two entrepreneurs started a manufacturing business together. They agreed to share the profits and losses equally and contributed equal amounts of capital to the business. Their partnership thrived, and they expanded their operations. However, when the business faced financial difficulties, both partners were personally liable for the debts and obligations of the partnership, leading to significant personal financial losses.
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Example Series 65 Example Practice Question
Two friends decide to open a restaurant together. They draft a partnership agreement outlining their respective capital contributions, profit and loss sharing percentages, and management responsibilities. As general partners, they are both personally liable for the debts and obligations of the restaurant. If the restaurant fails and cannot pay its debts, the partners' assets may be at risk.