Utah General Contractors - Business and Law Practice Exam

In a general partnership, is each partner liable for the debt of the company up to the percentage of ownership?

1. True

2. False

3. Only if stated in the contract

4. Only for personal debts

The correct answer is: False

In a general partnership, each partner bears joint and several liabilities for the debts of the partnership, meaning that each partner is fully responsible for all debts incurred by the business, not limited to just their percentage of ownership. If the partnership defaults on a debt, creditors can pursue any partner for the total amount owed, regardless of each partner's ownership stake. This principle underscores the inherent risk in forming a general partnership, as it means that a partner could be held liable for debts that were primarily incurred by other partners or business actions. While some liability aspects might be detailed in the partnership agreement, the fundamental legal principle of joint and several liability remains in effect unless specific provisions are made which alter that structure, which is uncommon. Therefore, the idea that liability is capped at the percentage of ownership is inaccurate in a general partnership context.