Paralegal Advanced Competency Exam (PACE) Practice Exam

Which of the following is true about the liability of a general partner?

1. Only liable to the extent of their investment

2. Liable for the partnership's debts and obligations

3. Protected against personal claims

4. Does not require consent from other partners to bind the business

The correct answer is: Liable for the partnership's debts and obligations

A general partner in a partnership has unlimited personal liability for the debts and obligations of the partnership. This means that if the partnership incurs a debt or faces a lawsuit, creditors can seek payment from the personal assets of the general partner, not just the assets of the business itself. This level of liability underscores the risk associated with being a general partner, as they are fully responsible for the partnership’s obligations. The other options present different aspects of liability and partnership structure that do not apply to general partners. For instance, the idea that a general partner is only liable to the extent of their investment reflects a concept typically associated with limited partners, who have limited liability protection. Similarly, the notion of being protected against personal claims contradicts the principle of unlimited liability. Lastly, while a general partner has the authority to bind the partnership in contracts and decisions, this does not specifically relate to the concept of liabilities but rather to the operational aspects of the partnership itself. Thus, the correct statement accurately represents the nature of liability for general partners.