ACCA Applied Skills · Corporate and Business Law (Global) · Partnerships
Gwen contributes capital to a limited partnership and takes no part in managing the business, which is run by the general partner, Hakim. Gwen then starts negotiating contracts with suppliers on the firm's behalf and holds herself out as a manager. What is the likely effect on Gwen's position?
Gwen risks losing her limited liability. A limited partner is protected only while she stays out of management, so by negotiating contracts and acting as a manager she may become personally liable like a general partner.
- AShe keeps limited liability because her capital contribution is fixed
- BShe may lose limited liability protection for debts arising from her involvement in managementCorrect
- CShe automatically becomes a shareholder of a company
Explanation
A limited partner enjoys limited liability on condition that she does not take part in management. If she does so, she risks being treated as a general partner for liabilities incurred. Option A ignores that condition. Option C is irrelevant, as a partnership is not a company.
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