ACCA Applied Skills · Corporate and Business Law (Global) · Corporations and legal personality
Amara and Bola set up a business as a general partnership under the law of their country. The business later fails and cannot pay its debts. Which statement best describes the position of the partners?
The partners are personally liable for the firm's debts. A general partnership generally lacks separate legal personality, so the business and its owners are treated as the same for liability purposes. Limited liability to the amount of capital contributed is a feature of companies, not general partnerships.
- AThe partners are personally liable for the firm's debts because the partnership has no separate legal personalityCorrect
- BThe partners are liable only up to the capital they each contributed, because the firm is a separate legal person
- COnly the partner who managed the firm day to day is liable for its debts
Explanation
A general partnership is not a separate legal person in the usual position. The partners are therefore personally liable for the firm's debts, normally jointly or jointly and severally. Limiting liability to capital contributed is a feature of a company or limited liability entity, not a general partnership.
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