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Which one is true?
1. Each partner has limited liability for the debts of the partnership
2. A partner is an employee of the partnership
3. Each partner is entitled to participate in the management and
running of the business
4. There must be a formal partnership agreement signed by all partners which specifies the respective rights, duties and obligations of the partners to each other
Correct answers are 1 and 3. But i didn’t understand why 1 is true if it’s not said partnership is LLP and why 4 is false? To my mind correct answers are 3 and 4. Am i right? Thanks in advance for your helpI don’t know where you found this question, but 1 is not true for the reasons you state.
4 is not true because if there is not a formal partnership agreement, then the law ‘imposes’ a standard agreement. (However this is law rather than Paper FA, and partnership accounting is not examinable in Paper FA).
As the Law Tutor, may I stick my oar in?
Without further information, this is a poor question – are you sure that you have posted the full question?
Option 1 – could be true and is true if it’s a limited liability partnership
Option 2 – it could be argued that the person known as a ‘salaried partner’ may be seen as an employee – but that’s a weak one.
Option 3 – typically would be true. However, in the case of a Limited Partnership, the ‘limited partner’ cannot participate in the management and running of the business. So potentially option 3 is false
Option 4 – early on in the partnership law lectures on this site, I mention that a partnership is formed by agreement. But that agreement (ideally would be in writing) does NOT have to be in any way formal. It may be written but equally it could be oral and may even be deemed to constitute a partnership simply by considering the conduct of the parties
What a dreadful question where option 1 could be correct, option 2 could arguably be correct, option 3 could be correct and option 4 is certainly incorrect.
But from the other side, option 1 could be incorrect, option 2 could be seen to be incorrect, option 3 could be incorrect whereas option 4 is certainly incorrect.
Without background information about the particular organisation around which the question is based, it’s an impossible question to answer.
OK?
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