Final answer:
The claim that profits in a partnership must be divided equally is false. Partnership agreements define profit distribution, and partners share personal liability and are responsible for each other's business actions. Furthermore, partnerships have limited life spans, which can affect business continuity.
Step-by-step explanation:
The statement that one of the major disadvantages of a partnership is that profits must be divided equally is false. In general partnerships, profits do not necessarily have to be split equally among partners unless specifically agreed upon in the partnership agreement. The division of profits in a partnership is a matter of the agreement between the partners and can be distributed based on varying criteria such as investment contribution, effort, or agreed-upon percentages.
One of the main disadvantages of a general partnership is the personal liability shared by all owners. This means each partner is personally responsible for the business's debts, and this can result in personal assets being at risk in the event of bankruptcy or lawsuits. Moreover, in a partnership, the actions of one partner can bind the entire partnership; each partner is responsible for the other's actions within the course of business activities. This shared liability can be a substantial risk for partners.
Another disadvantage of a partnership is its limited life. The business entity can change or dissolve when a partner leaves or passes away. In such scenarios, new partners may be introduced, altering the composition and potentially the direction of the business.
Different types of partnerships, such as limited partnerships, exist to offer solutions to some of these disadvantages. In a limited partnership, certain partners may have limited liability to the amount of capital they have invested. These silent or financial partners do not participate in the daily operations, and their liability is typically limited to their investment in the business.