Question

12. Sam Muller and Geoffrey Robinson enter into a limited partnership in which Sam is the general partner and Geoffrey is the limited partner. They borrow $50,000 to start a business. Keeping all rules of naming their businesses in mind, they start a law firm named Robinson-Muller Legal Associates. Martin Humphrey joins them after eleven months as a general partner but does not include his surname in the name of the business. If the business fails, which of the following holds well?

A. Only Sam, being the sole general partner is liable to the creditor.

B. Martin has unlimited personal liability for not including his surname in the name of the business.

C. Geoffrey is liable as a general partner as he included his surname in the business with full knowledge.

D. All three partners are equally liable to the creditor, irrespective of including their surname in the title of the business.

13. How are profits and losses shared in the absence of a limited partnership agreement?

A. Profits and losses are shared equally among all partners.

B. Profits and losses are shared equally among general partners and unequally among limited partners.

C. Profits are shared equally among all partners, losses are shared based on the value of each partner’s capital contribution.

D. Both profits and losses are shared on the basis of the value of each partner’s capital contribution.

14. Laura is an investor limited partner in a limited partnership. Two years after she becomes a limited partner, Laura thinks that the general partners are not doing a very good job managing the affairs of the limited partnership and participates in the management of the limited partnership. While she is doing so, a bank loans $1 million to the limited partnership, believing that Laura is a general partner. If the limited partnership defaults on the $1 million loan, which of the following holds well?

A. Laura is not personally liable as she is a limited partner on paper.

B. Laura is personally liable as the bank, in good faith, thought she is a general partner.

C. Laura has unlimited personal liability as a limited partner.

D. Laura’s liability is restricted to the value of her capital investment in the partnership.

Answer 1

12. As per Uniform Limited Partnership Act (ULPA), the limited partners are only liable up to the amount of their capital contribution, provided the surname of the limited partner does not appear in the partnership name.

Geoffrey Robinson is a limited partner but his name appears in the partnership name. Hence, he has unlimited personal liability as per the Act.

Therefore, the answer is option C.

13. As per Uniform Limited Partnership Act (ULPA), profits or losses are shared as agreed in the certificate or, if there is no agreement, in accordance with the percentages of capital contributions made.

Therefore, the answer is option D.

14. A limited partner is not involved in its day-to-day business. They cannot incur obligations on behalf of the partnership or participate actively in the business. A limited partner may become personally liable only if they are proved to have assumed an active role in the business, taking on the duties of a general partner.

In the given scenario, Laura has clearly participated in the active management of the limited partnership and has hence, assumed the role of a general partner in dealing with the bank.

Therefore, the answer is option B.