Multiple Choice
One difference between partnerships and sole proprietorships is that partnerships:
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1. Introduction to Accounting
Business Organization
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Which of the following is NOT an advantage of a general partnership?
A
Unlimited liability for partners
B
Ease of formation
C
Direct control by owners
D
Pass-through taxation
Verified step by step guidance1
Understand the concept of a general partnership: A general partnership is a business structure where two or more individuals share ownership, responsibilities, and profits. Each partner has equal rights in managing the business unless otherwise agreed upon.
Review the advantages of a general partnership: These typically include ease of formation (minimal legal formalities), direct control by owners (partners actively manage the business), and pass-through taxation (profits are taxed at the individual level, avoiding double taxation).
Analyze the concept of unlimited liability: In a general partnership, each partner is personally liable for the debts and obligations of the business. This means their personal assets can be used to satisfy business debts, which is considered a disadvantage rather than an advantage.
Compare the options provided in the question: Identify which options align with the advantages of a general partnership (ease of formation, direct control by owners, pass-through taxation) and which one does not (unlimited liability for partners).
Conclude that 'unlimited liability for partners' is NOT an advantage of a general partnership, as it exposes partners to significant financial risk.
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