Your client has invested $100,000 in a limited partnership. If a claim of $1,000,000 arises, what is the maximum exposure?

Your client has invested $100,000 in a limited partnership. If a claim of $1,000,000 arises, what is the maximum exposure?

• A. $0
• B. $100,000
• C. $1,000,000
• D. Unlimited

Answer: (D)

In a limited partnership, liability is different for the two types of partners. General partners have unlimited liability, while limited partners are protected so their losses are limited to the amount they invested, as long as they don’t take on a role that makes them a general partner or give personal guarantees. If a $1,000,000 claim arises, the partnership’s assets would be used first. The limited partner’s exposure is capped at the amount they contributed, so with a $100,000 investment, the maximum loss is $100,000. The remaining amount would be the responsibility of the general partner(s) and, if needed, the partnership’s other assets. Unlimited exposure would only occur if the investor stepped into a general-partner role or provided a personal guarantee.

In a limited partnership, liability is different for the two types of partners. General partners have unlimited liability, while limited partners are protected so their losses are limited to the amount they invested, as long as they don’t take on a role that makes them a general partner or give personal guarantees.

If a $1,000,000 claim arises, the partnership’s assets would be used first. The limited partner’s exposure is capped at the amount they contributed, so with a $100,000 investment, the maximum loss is $100,000. The remaining amount would be the responsibility of the general partner(s) and, if needed, the partnership’s other assets. Unlimited exposure would only occur if the investor stepped into a general-partner role or provided a personal guarantee.