Which of the following is not a characteristic of partnership? Multiple Choice The partnership itself pays no income taxes. It is easy to form a partnership. Any partner can be held personally liable for all debts of the business. A partnership requires written Articles of Partnership. Each partner has the power to obligate the partnership for liabilities.
The Correct Answer and Explanation is:
The correct answer is: A partnership requires written Articles of Partnership.
Explanation:
A partnership is a business structure where two or more individuals share ownership and management of a company. There are several key characteristics of a partnership that are important to understand, but the requirement for written Articles of Partnership is not one of them. Let’s break down the characteristics:
- The partnership itself pays no income taxes: This is true because partnerships are considered “pass-through” entities for tax purposes. This means the partnership itself does not pay taxes on its income. Instead, the income “flows through” to the individual partners, who report their share of the income on their personal tax returns.
- It is easy to form a partnership: This is true. Forming a partnership is relatively simple compared to other business structures like corporations. There is no formal requirement to file with the state (unless the partnership is operating under a specific business name, in which case a DBA might be needed). The partnership is formed when two or more people agree to share the business responsibilities.
- Any partner can be held personally liable for all debts of the business: This is also true. In a general partnership, each partner has personal liability for the debts and obligations of the business. This means that if the partnership cannot pay its debts, the personal assets of the partners could be at risk.
- A partnership requires written Articles of Partnership: This is not a required characteristic of a partnership. While having a written partnership agreement (sometimes called Articles of Partnership) is highly recommended for clarity on roles, responsibilities, and profit-sharing, it is not legally required. In the absence of a written agreement, the partnership is still legally valid based on the terms of the partnership’s operations, which may be inferred from actions and verbal agreements.
- Each partner has the power to obligate the partnership for liabilities: This is true. In a general partnership, each partner has the authority to bind the partnership to contracts and incur liabilities. This shared authority can lead to risks, especially if one partner takes on more obligations than others expect.
In summary, a partnership does not require written Articles of Partnership to be legally valid, although it is highly advisable to have one.
