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ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting

Which of the following best describes a key characteristic of a partnership, as opposed to a company?

In a general partnership, the partners normally have unlimited personal liability for the firm's debts. This contrasts with a company, where shareholders' liability is limited to the capital they invested, and where the entity has a separate legal existence and perpetual succession.

  1. APartners normally have unlimited personal liability for the firm's debts in a general partnershipCorrect
  2. BPartners must file audited financial statements for public inspection
  3. CPartners own shares that can be freely traded on a stock exchange
  4. DThe partnership has perpetual succession independent of its partners

Explanation

In a general partnership the partners are personally liable for the firm's debts, unlike company shareholders. Shares traded on exchanges and public filing of audited accounts relate to listed or public companies. Perpetual succession is a company feature, not a partnership one.

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