What describes the liability of partners in a Limited Partnership?

In a Limited Partnership, the correct understanding of partners' liability is that they are liable only to the extent of their investment. This structure differentiates between general partners and limited partners. General partners maintain full personal liability for the debts and obligations of the partnership, while limited partners' liability is restricted to the amount they have invested in the partnership. This means that limited partners are not personally responsible for the business’s debts beyond their investment, providing them with a layer of protection for their personal assets. This feature encourages investment since individuals can participate in the partnership without risking more than they have committed financially.

The incorrect options suggest scenarios that do not accurately reflect the nature of a Limited Partnership. For instance, stating that partners have unlimited liability implies that all partners are subject to the same level of risk, which is fundamentally untrue for limited partners. Similarly, suggesting that all partners are considered general partners undermines the very definition of a Limited Partnership where there are specifically defined roles. Finally, saying that liability is not defined by investment disregards the crucial aspect that distinguishes between the differing liabilities of limited and general partners.