What is a disadvantage of a Limited Partnership?

• A. All partners are responsible and liable for the actions of the others. Personnel assets vulnerable to lawsuits and other claims. Income taxed at individual rates. If one partner wants to withdraw, the partnership is usually dissolved.
• B. Limited partners can manage the business
• C. It avoids personal liability for all partners
• D. Income is taxed at corporate rates

Answer: (A)

The main idea here is how liability and continuity work in a limited partnership. In a limited partnership, there are general partners who operate the business and have unlimited personal liability for the partnership’s debts and actions, and limited partners who contribute capital but are protected from personal liability beyond their investment. A real disadvantage shown here is that liabilities can attach to all partners due to the partnership’s actions, and the partnership’s existence can be disrupted if a partner withdraws.

Why this answer fits: it highlights two practical drawbacks of the structure. First, even if you’re not actively running the day-to-day, you can still be exposed to claims arising from the partnership’s activities, and in many cases the personal assets of the general partners (and sometimes others in the partnership) can be at risk. Second, if a partner decides to leave, many limited partnerships dissolve unless the agreement provides for continuation, creating instability and potential disruption to ongoing projects.

Why the other statements don’t fit: claiming limited partners can manage the business contradicts the typical limit on their involvement and would undermine their liability protection. Saying it avoids personal liability for all partners is incorrect because general partners retain unlimited personal liability. Saying income is taxed at corporate rates is incorrect for partnerships, which are usually pass-through entities taxed at the partners’ individual rates (unless an election is made to be taxed as a corporation).