Future Business Leader Achievments (FBLA) Economics Practice Exam

Which of the following is a disadvantage of organizing a business as a partnership?

1. Taxes are higher than on proprietorships.

2. Each partnership is responsible for business actions taken by the other partners.

3. If one partner dies, the remaining partners are responsible for continuing the business.

4. It is easier to raise investment capital when the business is a proprietorship.

The correct answer is: Each partnership is responsible for business actions taken by the other partners.

In a partnership, each partner is jointly responsible for the business's actions, meaning that any legal issues or debts incurred by one partner can affect all the others. This shared liability can be a significant disadvantage, as partners must trust one another to act responsibly and ethically. If one partner makes a poor decision, it could have serious repercussions for the entire partnership, including financial loss or legal trouble. This shared accountability often places partners in vulnerable positions, complicating management and decision-making processes. Regarding the other options, the first mention of higher taxes may not be a straightforward disadvantage because tax structures can vary based on the nature of the business and its profits. The possibility of remaining partners needing to continue the business after one partner's death highlights the continuity and succession challenges in partnerships. Lastly, raising investment capital can be generally easier in a partnership than in a sole proprietorship since partnerships can often present a stronger, more credible business structure to potential investors.