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

Karl is a limited partner in a limited partnership. He starts signing supply contracts on behalf of the firm, and suppliers deal with him believing he is a general partner. What is the likely legal consequence for Karl?

Karl may be liable as a general partner towards suppliers who reasonably relied on his conduct. Limited partners who take part in management or act as general partners risk losing their limited liability protection, regardless of the registered contribution.

  1. AHe keeps full limited liability because his contribution was registered
  2. BHe may be liable as a general partner to those suppliers who reasonably relied on his conductCorrect
  3. CHe automatically ceases to be a partner and has no liability

Explanation

Taking part in management, or holding oneself out as a general partner, can lead to unlimited liability towards third parties who relied on this. Registration of the contribution does not protect him, and he does not automatically cease to be a partner.

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