Utah General Contractors - Business and Law Practice Exam

What is true about the liability of partners in a general partnership?

1. Liability is shared equally among partners

2. Partners are not liable

3. Liability is limited to initial capital contributed

4. Partners are personally liable for all business debts

The correct answer is: Partners are personally liable for all business debts

In a general partnership, all partners share in the management of the business and, crucially, they also share responsibility for its liabilities. This means that each partner is personally liable for all business debts incurred by the partnership. This liability extends to debts incurred by any partner in the course of business operations, and it is unlimited, meaning that creditors can pursue partners' personal assets to satisfy partnership obligations. This structure exists because a general partnership does not provide the same protective features as a limited liability company (LLC) or corporation, where personal liability is typically shielded. Each partner's personal assets may be at risk if the partnership cannot meets its debts or obligations. In contrast, the other options imply limited or no liability, which does not accurately reflect the nature of a general partnership. Therefore, the assertion that partners are personally liable for all business debts accurately reflects the legal principles governing general partnerships.