[Tutoring Concerns] André and Sasha want to go into business together and plan on offering a tutoring service to high school and college students. André proposes that they share control of the business and split profits equally and not bother with a written agreement. Sasha, however, is concerned about being able to pay their debts, since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their test scores do not improve. She tells André that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells André that they should form a corporation to shield their personal assets. André, however, tells Sasha that their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would result in a tax being imposed twice.
-Is André correct in his assertion that by sharing control of the business and splitting profits equally there could be no personal liability for debts?
A) Yes, he is correct so long as they do not reach an agreement in writing.
B) Yes, because they will be considered a partnership regardless of whether any agreement is in writing.
C) Yes, because so long as they have nothing in writing, their arrangement will be considered a joint venture.
D) Yes, so long as they sign no contracts by which they agree to be personally liable.
E) No, he is incorrect.

Question

Quizplus · Accepted Answer

André is incorrect because in a general partnership, which is what their arrangement would default to without a formal agreement or corporation setup, partners share control and profits but also have joint and several liability for the debts of the business. This means their personal assets could be at risk for the debts of the business.

[Tutoring Concerns] André and Sasha Want to Go into Business