Skip to content

ACCA Applied Skills · Corporate and Business Law (Global) · Partnerships

Brightwater LP has one general partner, Kofi, and one limited partner, Liang. Liang begins signing supply contracts on behalf of the firm and negotiating with customers as if he were a general partner. Under the usual rule for limited partnerships, what is the likely consequence?

Liang is likely to lose his limited liability for debts arising while he participates in management. The rule exists because limited liability is the price of being a passive investor; a limited partner who acts like a general partner can be treated as one.

  1. ALiang loses his limited liability for debts incurred while he takes part in managementCorrect
  2. BLiang's liability stays limited because he contributed capital
  3. CThe limited partnership is automatically dissolved and converted into a company
  4. DKofi loses his unlimited liability and becomes a limited partner

Explanation

A limited partner who takes part in the management of the business risks losing the protection of limited liability and may be treated as a general partner for the debts incurred during that involvement. Capital contribution does not protect him. Kofi's unlimited liability is unaffected.

Did you get it right without looking?

One question tells you little. A timed set on Partnerships shows your real accuracy, how long you take and where you lose marks.

Practise PartnershipsFree diagnostic mock

More Partnerships questions