Final answer:
It is false that a retiring partner is personally liable for new partnership debts incurred after their departure. A general partnership comes with shared liabilities, putting partners' personal assets at risk. Forming an LLP can provide personal liability protection for partners.
Step-by-step explanation:
When a partner retires from a partnership, it is a common misconception that they remain personally liable for any new debts incurred after their retirement. However, this statement is false. Once a partner retires, they usually negotiate and conclude their responsibilities regarding existing debts, but they are not personally liable for new debts incurred by the partnership after their departure date. Meaning they will no longer be responsible for the actions of the remaining partners or any new partners who join the business.
The disadvantages of a general partnership include shared responsibility for each partner's actions, shared liability for all business debts, and personal liability, which could affect personal assets in case of bankruptcy or lawsuits. In the event a partner leaves or dies, the partnership often needs to be dissolved or restructured, which can impact the continuity of the business.
To mitigate such risks, some business owners opt for a limited liability partnership (LLP). An LLP provides the benefit of limiting a partner's liability to the extent of their investment in the company, protecting personal assets from being at risk if the business were to fail. However, the specifics can vary by jurisdiction and require the partnership agreement and local laws to be reviewed to understand the extent of liability.