Siti and Aisha currently are general partners in a business located in Malaysia. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their general partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally.

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Quizplus · Accepted Answer

Siti and Aisha should consider a limited liability company (LLC) to replace their general partnership. An LLC will provide them with limited liability, meaning that their personal assets are protected in case the business incurs debt or is sued. At the same time, an LLC allows the owners to be treated equally and maintain control over the business, as in a general partnership. A sole proprietorship and a joint stock company are not suitable alternatives, since the former provides no liability protection and the latter is more complex and requires more shareholders. A limited partnership may provide liability protection, but it requires at least one general partner with unlimited liability, which Siti and Aisha wish to avoid. A corporation would also provide limited liability, but it involves more formalities and may not be suitable for a small business with only two owners.

Siti and Aisha Currently Are General Partners in a Business