Mark Washington decides to form a limited partnership with five friends for the purpose of operating a dog walking business. Mark makes himself the sole general partner and the friends as the...

Mark Washington decides to form a limited partnership with five friends for the purpose of operating a dog walking business. Mark makes himself the sole general partner and the friends as the limited partners. He chooses the limited partnership form, because its default rules clearly grant sole management rights to him as the only general partner. Mark is concerned about having personal liability on contracts he signs on behalf of the limited partnership. What can Mark do to limit personal liability for the obligations of the business to the amount of the capital contribution?

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justaguide | College Teacher | (Level 2) Distinguished Educator

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A limited partnership is one that has two types of owners, there is at least one general partner that has the power to take decisions for the business and can bind the business in a legal contract. The other type of partners are known as limited partners. They do not take decisions about how the business is run and have very little control on the business. The complete control enjoyed by the general partner comes with unlimited liability making the general partner obligated to pay for any debts taken by the business or any damages that may arise due to their operations.

It is not possible for Mark to limit his personal liability to the amount contributed by him to capital of the business if he is the general partner of a limited partnership. To reduce his personal liability he could opt instead to create a Limited Liability Partnership where the personal liability of all partners is limited to their personal contribution towards the formation of the business. But this reduction in liability reduces the degree of control on the business that Mark enjoys. In limited or general partnerships one or more of the partners have to be willing to accept all liabilities arising due to the operations of the business.

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