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CFA Level I · CFA Level I Exam · Organizational Forms, Corporate Issuer Features, and Ownership

A private equity sponsor sets up a fund in which it manages investments and accepts unlimited liability, while outside investors contribute capital and take no part in management. The outside investors' liability is most likely limited to:

Outside investors' liability is most likely limited to the amount they contributed. In a limited partnership, limited partners who do not participate in management risk only their invested capital, while the general partner carries unlimited liability for the fund's obligations.

  1. Atheir share of the fund's annual profits
  2. Bthe amount they contributed to the fundCorrect
  3. Ctheir pro rata share of all fund debts

Explanation

This is a limited partnership: the sponsor is the general partner and the outside investors are limited partners. Limited partners risk only their capital contribution, provided they stay out of management. The other options misstate the limit.

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