Mark Giltrow and Denise Chan a
Mark Giltrow and Denise Chan are forming a business to imprintT-shirts. Giltrow suggests that they organize as a partnership inorder to avoid the unlimited liability of a proprietorship.According to Giltrow, partnerships are not very risky.
Giltrow explains to Chan that if the business does notsucceed, each partner can withdraw from the business, taking thesame assets that she or he invested at its beginning. Giltrowstates that the main disadvantage of the partnership form oforganization is double taxation: First, the partnership pays abusiness income tax; second, each partner also pays a personalincome tax on her or his share of the business’s profits.
Correct the errors in Giltrow’s explanation.
1. A partner has
▼
personal liability for the obligations of the partnership.Therefore partnerships are
▼
not risky
risky
for a partner.2. A partner
▼
can
cannot
take from the business the same assets that he or she investedat the beginning. 3. Partnerships
▼
don’t pay
pay
business income tax.
Answer:
Mark Giltrow and Denise Chan are partners. They form apartnership firm to imprint T-Shirt.
1. A partner has personal liability for the obligations of thepartnership. Therefore partnerships are not risky.
Explanation
Partnership is not risky in compare to sole proprietorshipbecause in partnership all debts are divided among partners inagreed ratio. No single partner is responsible for businessoperations. Because all decisions in partnership are taken byagreement of all partners.
But in sole proprietorship all debts are bear by only the soleproprietor who owns the business.
2. A partner cannot takefrom the business the same assets that he or she invested at thebeginning.
Explanation
Partners can’t take from the business the same asstes that isinvested at the beginning. Because partners are personallyresponsible for all debts and any liabilities arise from businessoperations. If in any case business does not succeed then allassets are sold out and from liabilities are paid out and remainingportion is divided among partners in agreed ratio.
3. Partnerships don’t paybusiness income tax.
Explanation
In partnership the partners manages and control the business,and all earning from it flows directly through the business to thepartners, who are then taxed based on their portion of the income.Partners pay personal income taxes on their business profits.
Thus, profits get taxed only once { No double taxation} by thepersonal income tax. Partners don’t pay business income tax.
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