When a partner is unable to pay a capital deficiency:
A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners before distribution of cash.
C) The partnership ends before distribution of cash.
D) The deficient partner is relieved of the liability.
E) The remaining partners must wait for the deficiency to be paid before cash is distributed.

Question

Quizplus · Accepted Answer

In a general partnership, partners have unlimited liability, meaning they are personally responsible for the partnership's obligations. If a partner is unable to pay a capital deficiency, the shortfall must be covered by the remaining partners before any cash distribution is made. This is because each partner is responsible for the partnership's debts and obligations. Option A is not always feasible, as a loan may not be available or may not be enough to cover the deficiency. Option C is not necessarily the case, as the partnership may continue even if a partner is unable to pay their share of the deficiency. Option D is not correct because the deficient partner is still liable for their share of the debt. Option E is not necessarily the case, as the remaining partners are responsible for covering the deficiency.

When a Partner Is Unable to Pay a Capital Deficiency