SIE Understanding Products and Their Risks Question 69: Answer and Explanation

Question: 69

What is the general partner's decision-making role in a limited partnership?

• A. The GP decides how much capital each limited partner will contribute.
• B. The GP submits the annual budget to a board of directors for approval.
• C. The GP operates the program with a fiduciary relationship to limited partners.
• D. The GP makes all decisions regarding the partnership.

Correct Answer: C

Explanation:

C: Choice C is correct because the general partner operates the program, with the responsibility to do so to benefit the limited partners. Choice A is incorrect because each limited partner decides how much to invest, perhaps subject to a minimum and/or a maximum. If provided in the partnership agreement, the general partner may request additional capital from the limited partners, with possibly adverse effects, if a limited partner is not able to fulfill the request or chooses not to do so. Choice B is incorrect because a limited partnership has no board of directors. Choice D is incorrect because some major decisions may be made by limited partners holding a majority ownership interest.