Joseph wants to open up a skateboard shop with his cousin Billy. He would like for them to own and operate the shop equally. What kind of partnership should he form? A. Limited partnership B. General Partnership C. Financial Partnership D. Family Partnership
Joseph wants to open up a skateboard shop with his cousin Billy. He would like for them to own and operate the shop equally. What kind of partnership should he form? A. Limited partnership B. General Partnership C. Financial Partnership D. Family Partnership
The Correct Answer and Explanation is:
Correct Answer: B. General Partnership
Explanation:
Joseph and Billy want to own and operate the skateboard shop equally, which means they intend to share both the ownership and the day-to-day management responsibilities of the business. This is the defining characteristic of a general partnership.
A general partnership is a business arrangement in which two or more individuals agree to share equal responsibility for managing a business and are equally liable for the debts and obligations of the business. In this type of partnership, each partner contributes to the business—whether through capital, labor, or expertise—and shares in the profits and losses according to the terms of the partnership agreement.
This structure is ideal for Joseph and Billy because:
- They both want equal control: A general partnership allows both partners to have an equal say in decision-making.
- They both want equal ownership: Ownership is typically split according to the agreement, and in this case, they want a 50/50 share.
- They will both be actively involved: Unlike a limited partnership, which has both general and limited (silent) partners, a general partnership requires all partners to be involved in managing the business.
Let’s briefly examine the incorrect options:
- A. Limited Partnership: This involves at least one general partner (who manages the business and has unlimited liability) and one or more limited partners (who invest but do not manage and have limited liability). This wouldn’t suit Joseph and Billy since they both want equal management roles.
- C. Financial Partnership: This is not a legally recognized form of business structure. It is a vague term and not applicable here.
- D. Family Partnership: While Joseph and Billy are cousins, the term “family partnership” usually refers to estate planning strategies and not standard business structures.
Therefore, B. General Partnership is the most appropriate choice for their situation.
