Reference - Fish Fiasco

question 18

Multiple Choice

Reference - Fish Fiasco. Matt agreed to be a limited partner in Susie and Bill's business of importing tropical fish. Matt contributed $10,000 to the partnership as his capital contribution. The partnership made a profit of $30,000 the first year. Matt was paid nothing. When he inquired, Susie 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, Susie and Bill asked Matt to contribute $20,000 to cover the debts. When Matt complained about the amount, Bill told him that he and Susie were being overly reasonable and that he was legally liable for an even larger percentage. In an attempt to keep the business afloat, Matt told Susie and Bill that they should consider suing a customer who had not paid a large account. Susie and Bill replied, however, that they were morally opposed to lawsuits and that they had the final say on litigation. Assume that legally Matt has the rights and liabilities of a limited partner. Which of the following is true regarding Matt's entitlement to share in profits?

• A) During the first year of business, a limited partner is not legally entitled to a share of the profits.
• B) During the first year of business, a limited partner is only entitled to a share of the profits at the discretion of the general partners.
• C) A limited partner is generally entitled to a share of the profits, but during the first year of business, a limited partner is only entitled to one-half of whatever the share would normally have been.
• D) During the first year of business and also in subsequent years, a limited partner has a right to share in the profits.
• E) A new limited partner is only entitled to share in the profits after a partnership has been successful for three consecutive years.