Which of the following statements is CORRECT?
A)In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business.
B)Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests.
C)A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company.
D)In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business.Also, the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy.
E)A major disadvantage of all partnerships relative to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself.

Question

Quizplus · Accepted Answer

Partnerships can have difficulty attracting large amounts of capital because of the unlimited liability of partners, the need to reorganize when a partner dies, and the difficulty buying and selling partnership interests. Slow-growth companies may be more likely to organize as corporations because they may not need as much new capital, while faster growing companies may choose partnerships or other forms of ownership that allow for easier access to capital. Option A is incorrect because in a regular partnership, liability for other partners' misdeeds is unlimited. Option C is incorrect because a faster growing company may need to access more capital, making a corporation or another form of ownership with greater access to capital more desirable. Option D is incorrect because in a limited partnership, the general partner has operating control and the limited partners do not have voting control. Additionally, the limited partners are only responsible for the firm's debts up to the amount of their investment. Option E is incorrect because federal income taxes are paid by both partnerships and corporations, but the tax treatment differs between the two.

Which of the Following Statements Is CORRECT