Final answer:
The correct answer is option 1. General partnerships are characterized by unlimited liability for partners, meaning each partner can be held personally responsible for the business's debts. This contrasts with a limited liability partnership, where personal assets are protected. Despite this risk, general partnerships offer easy setup and joint management benefits.
Step-by-step explanation:
The characteristic of general partnerships is unlimited liability for partners. This means that each partner in a general partnership is personally responsible for all of the business's debts, and in the event of bankruptcy or a lawsuit, the partners could lose their personal assets. In contrast, a limited liability partnership or LLP provides partners with protection from such personal losses, limiting their liability to the amount they have invested in the company. General partnerships involve two or more individuals who share in the management, profits, and risk of the business.
Some advantages of a general partnership include ease of start-up, with just a partnership agreement required, joint management, shared profits, no special taxation on the business itself as each partner pays taxes on their personal income share, and it can be an efficient way to raise capital and attract investors due to multiple partners contributing assets.
However, there are notable disadvantages, such as personal liability, the responsibility for each other's actions, and the potential for a change in the business structure when a partner leaves or passes away. In the case of a general partnership, when compared to other business structures, the partners have the highest level of personal financial risk.