Florida Contractor Practice Exam

In a general partnership, which of the following is true about liability?

1. Partners have limited liability.

2. Only one partner has unlimited liability.

3. All partners share unlimited personal liability.

4. Liability is capped at the original investment amount.

The correct answer is: All partners share unlimited personal liability.

In a general partnership, all partners share unlimited personal liability. This means that each partner is jointly responsible for all debts and obligations of the partnership. If the partnership faces a lawsuit or incurs debts that it cannot pay, creditors can pursue any or all partners' personal assets to satisfy those obligations. This characteristic emphasizes the importance of trust and collaboration in a general partnership, as each partner must be aware of the financial decisions taken within the business. The idea of unlimited liability is fundamental to understanding the risk involved in entering a general partnership. It contrasts significantly with limited liability structures such as LLCs or corporations, where corporate debts do not typically implicate personal assets of the owners. Thus, all partners in a general partnership need to maintain open and honest communication regarding the partnership's financial activities, as their individual assets are at risk if the business fails to meet its liabilities.