Series 7 Exam Question 69: Answer and Explanation

Question: 69

Which TWO of the following corporate characteristics are the easiest for a limited partnership to avoid?

I. Having perpetual life

II. Providing limited liability

III. Having a centralized management

IV. Having free transferability

• A. I and III
• B. I and IV
• C. II and III
• D. II and IV

Correct Answer: B

Explanation:

B. In order for a partnership to not be taxed as a corporation, it must avoid at least two corporate characteristics. The easiest corporate characteristic for a partnership to avoid is having a perpetual life (partnerships are set up for a finite period of time) and having free transferability to partnership interest. Because of the approval process, limited partnerships are some of the most difficult investments to get in and out of.