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Buckwold12e_ch16_Review - 1CHAPTER 16 LIMITED PARTNERSHIPS...

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1CHAPTER 16 LIMITED PARTNERSHIPS AND JOINT VENTURES Review Questions 1. A limited partnership consists of two general classes of partners. Identify these classes, and describe the rights and obligations of each. 2. What can be done by a general partner to limit the extent of its obligations to the limited partnership? 3. “The tax treatment of limited partnership income and losses depends on the tax position of each partner.” Explain. 4. What key factors distinguish the limited partnership from the standard partnership? 5. “A limited partnership provides broader access to sources of capital.” Is this statement true? Explain. 6. Why is there less risk for the passive investor when a business venture is organized as a limited partnership, rather than a corporation? 7. Why is it that the passive investor in a profitable business venture may receive a higher rate of return if the venture is organized as a limited partnership, rather than a corporation? 8. What is a joint venture, and how is it different from a partnership? 9. With respect to the following, how does the tax treatment applied to a joint venture differ from that for a partnership? (a) Determination of capital cost allowance. (b) Active business income eligible for the small-business deduction.
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Solutions to Review Questions R16-1. The two classes of partners required in a limited partnership structure are general partners and limited partners. The general partner is fully liable for the obligations of the partnership entity (i.e., beyond its proportionate ownership ratio) and is also responsible for managing its business affairs. Limited partners, on the other hand, are responsible for the partnership obligations only to the extent of their investment in the partnership entity (similar to the limited liability aspect of a shareholder in a corporation). In addition, to qualify as a limited partner, the investor must not take part in the management and control of the partnership business. By definition, limited partners are passive investors. [s.96(2.4), 96(2.2)] R16-2. An investor who intends to be a general partner (and therefore is exposed
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