FINRA Securities Industry Essentials Exam (SIE) SIE Question # 79 Topic 8 Discussion
SIE Exam Topic 8 Question 79 Discussion:
Question #: 79
Topic #: 8
A partnership has had poor results, and a limited partner is concerned about the extent of her potential losses. Which of the following statements regarding her exposure is true?
A.
She cannot lose more than the capital she invested.
B.
She must absorb the losses of the partnership even beyond the capital invested.
C.
The general partner and limited partner share proportionately in the losses.
D.
The general partner assumes half of the losses, and the limited partners share the remaining half in proportion to their investment.
A limited partner’s liability is generally limited to the amount of capital invested in the partnership. This limited liability is a defining feature of limited partnership interests and direct participation programs. Choice A is correct. The general partner manages the partnership and typically has unlimited liability for partnership obligations, while limited partners are passive investors who do not participate in management. If a limited partner exercises control over the business, the limited liability protection may be compromised, but that is not stated in the question. Choice B incorrectly imposes unlimited loss exposure on the limited partner. Choice C is too broad because legal liability is not shared equally or proportionately in the same way between general and limited partners. Choice D invents a loss-sharing rule that does not describe limited partnership liability. The SIE outline includes direct participation programs, limited partnerships, pass-through tax treatment, illiquidity, and unlisted characteristics. It also includes investment risks and product structure. This question tests the distinction between economic loss of invested capital and legal liability beyond the investment. Reference: Section 2.1.6 Direct Participation Programs.
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