Which problem is more likely to affect a partnership than a corporation?

• A. Ability to issue shares to raise capital
• B. Unlimited personal liability for business debts
• C. Separation of ownership and management
• D. Double taxation of profits

Answer: (B)

Verified step by step guidance

1. Understand the key differences between a partnership and a corporation. A partnership is typically owned by two or more individuals who share profits, losses, and liabilities, whereas a corporation is a separate legal entity owned by shareholders.
2. Review the concept of 'unlimited personal liability.' In a partnership, partners are personally liable for the debts of the business, meaning their personal assets can be used to settle business debts. This is not the case for corporations, where liability is limited to the amount invested in shares.
3. Analyze the issue of raising capital. Corporations can issue shares to raise capital, which is a significant advantage over partnerships that rely on contributions from partners or loans.
4. Consider the concept of 'double taxation.' Corporations face double taxation because profits are taxed at the corporate level and again at the shareholder level when dividends are distributed. Partnerships avoid this issue as profits are passed directly to partners and taxed as personal income.
5. Evaluate the separation of ownership and management. Corporations often have a clear separation between owners (shareholders) and managers, while partnerships typically involve direct management by the partners, which can lead to different operational challenges.