Question

According to UPA 1997, during partnership liquidation, loans the partners have made to the partnership have the same status as loans from third-party creditors. As a practical matter, most loans from partners:

1) Are considered subordinate to loans from third-party creditors
2) Are considered equal to loans from third-party creditors
3) Are considered superior to loans from third-party creditors
4) Cannot be determined

Answer 1

During partnership liquidation under UPA 1997, partner loans are usually considered subordinate to those of third-party creditors, reflecting a common legal preference for outside creditors.

Step-by-step explanation:

According to the Uniform Partnership Act of 1997 (UPA 1997), during partnership liquidation, loans the partners have made to the partnership are to be treated similarly to the loans from third-party creditors. However, as a practical matter, most loans from partners are considered:

1. Subordinate to loans from third-party creditors

This subordinate status of partner loans reflects the general legal practice that favors outside creditors over insiders of a business entity in matters of debt repayment during the wind-up of business operations.