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. Financial partnership
B. General partnership
C. Limited partnership
D. Family partnership
The correct answer and explanation is:
The correct answer is B. General partnership.
A general partnership is an arrangement where two or more individuals agree to share ownership and operation of a business. In this case, Joseph and his cousin Billy would own and operate the skateboard shop together, making a general partnership the most suitable option. In a general partnership, both partners have equal responsibility and authority in managing the business. They share the profits, losses, and liabilities of the business. This setup aligns with Joseph’s goal of equally owning and operating the shop with Billy.
A financial partnership refers to an agreement where one or more partners contribute only financially but do not participate in the day-to-day operations or management of the business. This doesn’t suit Joseph’s scenario because both Joseph and Billy want to be actively involved in running the shop, not just investing money.
A limited partnership involves one or more general partners who manage the business and have full liability, and one or more limited partners who contribute capital but do not have a say in day-to-day operations. The limited partners also have limited liability, meaning they are only responsible for business debts up to the amount they have invested. This is not the best fit for Joseph and Billy, as both want to have an equal say in operations.
A family partnership is a form of partnership where the partners are related by blood, and it typically involves special tax and legal considerations. While Joseph and Billy are indeed cousins, the partnership type does not fundamentally differ from a general partnership in this case. The main consideration is whether both of them intend to take an active role, which is characteristic of a general partnership.
Therefore, a general partnership is the most appropriate structure for Joseph and Billy to share equal ownership and operation responsibilities in their skateboard shop.