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The deed states that a partner's personal loan liability will not fall on the firm. What type of clause is this?

Answer and explanation

Correct answer: Related to limitation of liability

The governing concept is the separation between a partner’s personal obligations and the liabilities of the partnership firm. A loan taken by a partner for personal purposes is ordinarily different from a borrowing undertaken by the firm for its business. A deed clause clarifying that the firm will not bear such personal liability helps define responsibility and prevents the firm’s funds or other partners from being treated as responsible without proper authority. Hence option A is correct because the clause limits or clarifies the liability attaching to the firm. It does not determine how profits are divided, give a sales discount, or specify where a warehouse is located. Those matters are unrelated to a personal-loan liability clause.

Related tags

Partnership DeedPersonal LiabilityLiability ClausePartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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