Question
Mark Giltrow and Denise Chan are forming a business to imprint T-shirts. Giltrow suggests that they organize as a partnership in order to avoid the
Mark Giltrow and Denise Chan are forming a business to imprint T-shirts. Giltrow suggests that they organize as a partnership in order 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 not succeed, each partner can withdraw from the business, taking the same assets that she or he invested at its beginning. Giltrow states that the main disadvantage of the partnership form of organization is double taxation: First, the partnership pays a business income tax; second, each partner also pays a personal income 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 invested at the beginning. 3. Partnerships
don't pay
pay
business income tax.
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