Utah General Contractors - Business and Law Practice Exam

What is a primary risk associated with a General Partnership?

1. Unlimited liability for business debts

2. Limited voting rights for some partners

3. Tax advantages over other structures

4. Restrictive operational rules

The correct answer is: Unlimited liability for business debts

A primary risk associated with a General Partnership is unlimited liability for business debts. In a General Partnership, all partners share in the profits, losses, and management responsibilities of the business. However, this structure also means that each partner is personally liable for the debts and obligations of the partnership, which includes potential legal actions against the business. If the partnership cannot meet its financial obligations, creditors can pursue the personal assets of any partner to satisfy debts. This risk emphasizes the importance of trust and financial transparency among partners. Furthermore, it can discourage investment and limit business growth due to the fear of personal financial exposure. In contrast, the other options do not encapsulate the most significant risk inherent in a General Partnership. Limited voting rights, potential tax advantages, and operational restrictions may exist in different partnerships or business entities, but they do not carry the same level of threat to personal financial security as unlimited liability.