Which of the following is a disadvantage of a general partnership?

• A. Complex and costly formation process
• B. Unlimited personal liability for business debts
• C. Double taxation of profits
• D. Limited ability to raise capital

Answer: (B)

Verified step by step guidance

1. Understand the concept of a general partnership: A general partnership is a business structure where two or more individuals share ownership, profits, and liabilities. Each partner is personally liable for the debts and obligations of the business.
2. Analyze the options provided in the question: Evaluate each option to determine whether it aligns with the characteristics of a general partnership.
3. Option 1: 'Complex and costly formation process' - General partnerships are relatively simple and inexpensive to form compared to other business structures like corporations. This is not a disadvantage of a general partnership.
4. Option 2: 'Unlimited personal liability for business debts' - In a general partnership, each partner is personally liable for the debts and obligations of the business. This is a significant disadvantage because personal assets can be at risk.
5. Option 3: 'Double taxation of profits' - Double taxation typically applies to corporations, not general partnerships. In a general partnership, profits are taxed only once at the individual level. This is not a disadvantage of a general partnership.