California Real Estate Practice Exam

For a limited partnership, what determines the limited partners' liability?

1. 25% of investment

2. Amount of investment written into partnership agreement

3. No liability

4. Same as all other partners

The correct answer is: 25% of investment

A limited partnership is a type of partnership in which there are two types of partners general partners and limited partners. General partners have unlimited liability, meaning they are personally liable for the debts and obligations of the partnership. Limited partners, on the other hand, have limited liability, meaning their personal assets are protected and they are only liable to the extent of their investment in the partnership. In a limited partnership, the limited partners' liability is determined by the amount of their investment written into the partnership agreement. This means that if a limited partner invests 25% of the total investment amount, they would only be liable for 25% of the partnership's debts and obligations. This option is different from the other choices because it specifies a specific percentage rather than leaving it open to interpretation. Option B may seem like a plausible answer, but it is not specific enough and can create confusion or disagreements among partners. Option C is incorrect because limited partners do have some liability, just not unlimited like general partners. Option D is also incorrect because limited partners have different levels of liability compared to general partners.