Utah General Contractors - Business and Law Practice Exam

What is a key advantage of forming a Limited Partnership?

1. Complete control of operations by partners

2. Protection from personal liability for limited partners

3. Ability to avoid taxation

4. Requirement of fewer regulations

The correct answer is: Protection from personal liability for limited partners

A key advantage of forming a Limited Partnership is the protection from personal liability for limited partners. In a Limited Partnership, there are two types of partners: general partners and limited partners. General partners manage the business and are personally liable for the debts and obligations of the partnership, meaning their personal assets can be at risk. Conversely, limited partners contribute capital and share in the profits, but their liability is restricted to the amount they invest in the partnership. This structure allows limited partners to invest without the fear of losing more than their initial contribution, making it an attractive option for those looking to invest in a business without taking on the associated risks of management and personal liability. While the other options highlight certain aspects of partnerships, such as control and regulations, they do not accurately capture the core advantage that limited partners have in terms of liability protection, which is a significant factor in partnership decisions.