Which of the following statements regarding partnerships is incorrect?
A) There are no legal formalities required to form a partnership and it can be an oral agreement.
B) Partnerships have unlimited liability not subject to the amount contributed by each partner.
C) The partnership is subject to income tax, not the individual partners.
D) Each partner has the authority to enter contracts on behalf of the partnership, provided the contracts relate to normal operations.

Question

Quizplus · Accepted Answer

Partnerships are typically "pass-through" entities for tax purposes, meaning the partnership itself is not taxed on its income. Instead, the income is passed through to the individual partners who then report it on their personal tax returns. This means that statement C is incorrect as it suggests the partnership is taxed directly, which is not the case in most jurisdictions.

Which of the Following Statements Regarding Partnerships Is Incorrect