Lamb Organized A Limited Partnership And Is The Only General

Lamb Organized A Limited Partnership And Is The Only General Partner

Lamb organized a limited partnership and is the only general partner. Maxi invested $20,000 in the partnership and was admitted as a limited partner with the understanding that she would receive 10% of the profits. After two unprofitable years, the partnership ceased doing business. At that point, partnership liabilities were $85,000 larger than partnership assets. How much money can the partnership’s creditors obtain from Maxi’s personal assets to satisfy the unpaid partnership debts?

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The scenario presents a limited partnership composed solely of Lamb as the general partner and Maxi as the limited partner. Understanding the liability implications for Maxi necessitates an examination of the legal structure governing limited partnerships, specifically the distinction between general and limited partners, their respective liabilities, and the circumstances under which a limited partner might be personally responsible for partnership debts.

In a typical limited partnership, the general partner has unlimited liability for the debts and obligations of the partnership, whereas limited partners enjoy liability protection up to the amount of their investment. Lamb, as the sole general partner, assumes unlimited liability for the partnership’s debts, which makes the analysis straightforward for Lamb but complex for Maxi, the limited partner.

Maxi invested $20,000 into the partnership and was promised 10% of the profits. This indicates that her status as a limited partner was contingent upon her role as an investor with limited liability. Importantly, limited partners generally cannot participate in the management or control of the partnership without risking their limited liability status.

The partnership's financial distress—liabilities exceeding assets by $85,000—raises the issue of personal liability for the partners. Since Lamb is the only general partner, Lamb bears full responsibility for settling the partnership’s debts from its assets and personal assets if necessary. Conversely, Maxi’s liability is limited to her original investment of $20,000 unless she engaged in actions that would personally impose liability, such as participating in management beyond her limited role.

When the partnership is wound up, creditors can pursue claims against the partnership’s assets first. If those assets are insufficient, the question is whether Maxi’s personal assets can be used to satisfy remaining debts. Given her status as a limited partner, her liability is typically limited to her initial investment of $20,000.

However, there are exceptions. If Maxi, beyond her role as a limited partner, actively participated in the management or control of the partnership, she could be deemed a general partner in the eyes of the law, thereby losing her limited liability protection. Such participation might include making operational decisions, signing on behalf of the partnership, or other managerial acts.

Absent evidence of her engaging in management, Maxi remains a limited partner with liability limited to her investment. Therefore, the partnership’s creditors cannot pursue Maxi’s personal assets beyond her $20,000 investment. They can only claim against the partnership’s assets and, if insufficient, against Lamb’s personal assets as the general partner.

Consequently, regarding the question, the amount of money available from Maxi’s personal assets to satisfy the partnership’s debts is limited to her original investment of $20,000. Since her liability is restricted to her contribution, creditors cannot reach her personal assets beyond this amount unless she engaged in activities that waived her limited liability status.

In conclusion, Maxi’s potential liability to the partnership’s creditors is capped at her initial investment of $20,000. The remaining liabilities of $85,000, not satisfied by the partnership assets or Lamb’s personal assets, will likely remain unpaid, emphasizing the importance of understanding the liability protections afforded to limited partners under partnership law.

References

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