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 income taxes must be paid by the partners rather than by the firm itself.

Question

Quizplus · Accepted Answer

Partnerships have more difficulty attracting large amounts of capital than corporations due to factors such as unlimited liability, the need to reorganize when a partner dies, and the illiquidity of partnership interests. Option A is incorrect as partners in a regular partnership have unlimited liability for the misdeeds of other partners. Option C is incorrect as fast-growing companies may choose to organize as a corporation due to easier access to capital. Option D is also incorrect as the general partner in a limited partnership has operating control while the limited partners have no control and have limited liability. Option E is incorrect as both partnerships and corporations may pass through income taxes to their partners or shareholders.

Which of the Following Statements Is CORRECT