Question

Which one of the following is a reason for the popularity of partnerships as a legal form for businesses?

a. Partnerships avoid the double taxation of income that is found in corporations.
b. Partnerships require a written Articles of Partnership.
c. In some cases, losses may be used to offset gains for income tax purposes.
d. Partners in partnerships are not subject to unlimited liability.
e. Partnerships avoid mutual agency.

Answer 1

Partnerships are popular because they avoid the double taxation of income that corporations face, can raise more capital than sole proprietorships, and allow for losses to offset gains for tax purposes.

Step-by-step explanation:

One of the reasons for the popularity of partnerships as a legal form for businesses is that partnerships avoid the double taxation of income that is found in corporations. In a partnership, each partner pays taxes on their share of the income, and the business itself is not subject to separate corporate taxes, which is a significant advantage when compared to the corporate structure where income is taxed at the corporate level and then again at the individual level on dividends. Additionally, partnerships are subject to little government regulation, can raise more capital than sole proprietorship, and in some cases, losses may be used to offset gains for income tax purposes, making it a flexible and tax-efficient business form.