Which of the following is true of a General Partnership?
A- Each partner has Mutual Agency.
B- Each partner is only taxed for their share of the profits.
C- Only the person establishing the partnership is liable for the debts of the company
D- The partnership is double taxed by the government as both an individual and a corporation.
A- Each partner has Mutual Agency.
The correct answer is A- Each partner has Mutual Agency.
In a general partnership, each partner has mutual agency, which means that partners have the authority to enter into contracts and make binding decisions on behalf of the partnership. This is different from limited partnerships where only some partners have this authority.
Option B is incorrect because in a general partnership, partners are personally responsible for all the debts and liabilities of the partnership, not just their share of the profits.
Option C is incorrect because in a general partnership, all partners are personally liable for the debts and obligations of the partnership, regardless of who established it.
Option D is incorrect because general partnerships are not taxed at the entity level. Instead, the partners are individually taxed on their share of the partnership's profits. General partnerships are subject to pass-through taxation, meaning the profits and losses of the partnership flow through to the individual partners' tax returns.
To determine which statement is true of a General Partnership, let's analyze each option:
A- Each partner has Mutual Agency: This statement is true. In a General Partnership, each partner has the authority to bind the partnership and make decisions on behalf of the company. This is known as mutual agency.
B- Each partner is only taxed for their share of the profits: This statement is not true. In a General Partnership, the partners are personally responsible for the partnership's profits and losses, and they report their share of the profits on their personal tax returns. However, it's important to note that this is not the only way partners are taxed, as will be explained in the next option.
C- Only the person establishing the partnership is liable for the debts of the company: This statement is not true. In a General Partnership, all partners are personally liable for the debts and obligations of the partnership. This means that if the partnership cannot cover its debts, the partners' personal assets may be used to satisfy those debts.
D- The partnership is double taxed by the government as both an individual and a corporation: This statement is not true. General Partnerships are not considered separate taxable entities. Instead, the profits and losses of the partnership flow through to the partners, and they are responsible for reporting their share of the partnership's income on their individual tax returns. This eliminates the issue of double taxation.
Therefore, the correct answer is A- Each partner has Mutual Agency.