Audu, Bisi, and Chidi established a general trading enterprise under a partnership agreement. Chidi contributed part of the initial capital and receives a regular share of the net profits, but by mutual agreement takes no active part in the daily operations or management of the business. Which of the following correctly classifies Chidi's status as a partner and describes his legal liability for the debts of the firm?
- He is a sleeping partner and has unlimited liability for all business obligations.Answer
- BHe is a limited partner and his liability is restricted strictly to the capital he contributed.
- CHe is a nominal partner and bears no personal financial liability for external claims.
- DHe is an active partner whose financial liability is protected by the partnership deed.
Answer
Chidi is a sleeping (or dormant) partner who retains unlimited personal liability for the debts and legal obligations of the partnership business.
A sleeping (or dormant) partner contributes capital to the enterprise and shares in the firm's net profits and losses, but refrains from active management. In a standard general partnership, all partners remain personally liable to an unlimited extent for all business debts.
Step-by-Step Solution
Key Concept
Types of Partners and Liability Rules in Partnership
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