Question

When a partnership liquidates, do partners get paid first or do creditors get paid first?

a) Partners
b) Creditors
c) Simultaneously
d) Depends on the partnership agreement

Answer 1

In the event of a partnership liquidation, creditors are paid before partners. This sequence is mandated by law and partnership agreements cannot override this requirement.

Step-by-step explanation:

When a partnership liquidates, the order in which payments are made is legally mandated. According to bankruptcy and partnership laws, creditors get paid first before the partners or owners of the partnership. This is to ensure that debts to third parties are settled prior to any distribution of remaining assets to partners. The correct answer is b) Creditors. It is important to note that partnership agreements cannot override this legal requirement. After creditors, if there are remaining assets, they are then distributed to the partners according to their capital accounts or as per the terms outlined in the partnership agreement.