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The deed says no partner may take a long term loan on behalf of the firm without consent of all. This restricts which decision?

Answer and explanation

Correct answer: Creating major financial liability

A long-term loan taken for the firm creates a substantial financial obligation. The firm must repay the principal and usually also meet interest or other agreed costs. Because such a decision can affect the firm’s future cash flows, risk, and ability to meet other commitments, the partnership deed may require approval from all partners before anyone takes the loan on the firm’s behalf.

Thus, option A is correct: the restriction concerns creating a major financial liability. Recording daily sales, writing monthly drawings, or making a small routine cash purchase does not normally create an obligation of comparable importance. The rule is not about ordinary bookkeeping; it controls a significant financial decision that can bind the whole firm.

Related tags

Long Term LoanFinancial LiabilityConsent

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