Joe Smith owns a book store as the sole proprietor. He is also a partner in a hotel, which borrowed $100,000 from the bank. Which of the following statements is true?
A) Because of the concept of limited liability, he can lose only what he has invested in the hotel.
B) The book store assets will only be available to the bank if the book store is operated by Smith in conjunction with the hotel.
C) The bank can look to the assets of the book store to pay off a debt.
D) The bank can only go after the assets of the book store if Smith was the actual person who negotiated the loan with the bank.
E) Although the bank can go after Smith's personal assets, they cannot go after the assets of the book store because the book store is a separate legal entity from Smith.

Question

Quizplus · Accepted Answer

As a sole proprietor and a partner in a hotel, Joe Smith's personal assets, including those tied to his book store, could be used to satisfy debts incurred by the partnership if the hotel's assets are insufficient. Sole proprietorships and general partnerships do not offer limited liability protection, meaning personal assets can be at risk for business debts.

Joe Smith Owns a Book Store as the Sole Proprietor