SIE Understanding Products and Their Risks Question 71: Answer and Explanation

Question: 71

Which of the following is correct regarding a limited partner in a direct participation program that is a real estate limited partnership?

• A. The limited partnership may have no limited partner.
• B. A limited partner generally participates in management decisions.
• C. A limited partner may have its ownership interest reduced if it fails to meet a capital call.
• D. An action of a limited partner may result in it taking on up to ten percent additional risk.

Correct Answer: C

Explanation:

C: Choice C is correct because a limited partner's failure to provide funds in response to a capital call as provided in the capital call agreement could result in the loss of reduction in that partner's ownership stake. Choice A is incorrect because a limited partnership must have at least one limited partner. Choices B and D are incorrect because a limited partner does not participate in management decisions. Otherwise, its status could change to general partner, resulting in its assuming unlimited risk.