Future Business Leaders of America (FBLA) Agribusiness Practice Test

What distinguishes a limited partnership from a general partnership?

1. All partners are equally liable

2. Involves general and limited partners

3. Ownership is restricted to family members

4. All partners share equal decision-making authority

The correct answer is: Involves general and limited partners

A limited partnership is characterized by the presence of both general partners and limited partners. General partners manage the business and bear full personal liability for the debts and obligations of the partnership. In contrast, limited partners contribute capital but do not participate in the management of the business and their liability is limited to their investment in the partnership. This structure allows for a clear distinction in roles and responsibilities within the partnership, which is essential for risk management and investor protection. Limited partners, by agreeing to this arrangement, can invest in a business without the risk of losing more than their invested capital, making it an attractive option for passive investors. The other choices do not accurately reflect this key distinction. For instance, stating that all partners are equally liable or share equal decision-making authority does not apply to a limited partnership due to the differing roles of general and limited partners. Additionally, ownership restrictions to family members are not a defining trait of limited partnerships; such restrictions may apply to other forms of partnerships but do not distinguish limited partnerships specifically.