[Fishy Fiasco] James Agreed to Be a Limited Partner in Ingrid

question 39

Multiple Choice

[Fishy Fiasco] James agreed to be a limited partner in Ingrid and Darnell's tropical fish importing business. Ingrid and Darnell were general partners. James contributed $10,000 to the partnership as his capital contribution. The partnership made a profit of $30,000 the first year. James was paid nothing. When he inquired, Ingrid told him that a limited partner was only entitled to a share of profits as approved by the general partners and that perhaps things would be better the next year. The next year, however, importation was banned because of a fish disease, and the partnership lost money and owed debts of $60,000. At the end of the year, Ingrid and Darnell asked James to contribute $20,000 to cover the debts. When James complained about the amount, Darnell told him that he and Ingrid were being overly reasonable and that James actually was legally liable for an even larger percentage. In an attempt to keep the business afloat, James told Ingrid and Darnell that they should consider suing a customer who had not paid a large account. Ingrid and Darnell replied, however, that they were morally opposed to lawsuits and that they had the final say on litigation.
-Which statement is true regarding any responsibility James has to share in losses?

• A) James assumed no liability for the partnership beyond the capital he invested.
• B) James has a legal obligation to share equally in losses with the general partners.
• C) James would be responsible for one-half of any losses with the two general partners having liability for the other half.
• D) James has no liability for losses at all.
• E) James has liability for losses only if the general partners are insolvent.

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