Chapter 12, Problem 1QC

To determine

Partnership:

Partnership can be described as an association of two or more entities such as individuals; corporations etc. who undertake one or more activities with an intention to make a profit.

The profit or loss of the association is distributed between the partners in a predetermined ratio known as a profit sharing ratio.

Partnerships have certain features such as a contract for a partnership, existence of two or more persons, profit sharing ratio etc.

To identify:

The Characteristic of a general partnership

Answer to Problem 1QC

Solution:

The correct answer is Option C.

Explanation of Solution

• A partnership does not limit liability of the partners to their share of the partnership. Partners are responsible in their individual capacity if the partnership firm fails to fulfill any liabilities or obligations that the partnership is responsible for.

• Partnerships usually are formed for a specific duration and may cease to exist in the event of death, retirement or insolvency of one or more partners.

• However, a partnership firm does not pay any business income tax. Instead profits from the partnerships are taxed in the hands of the partners in their individual capacity.

Conclusion

Hence it can be seen that a general characteristic of a general partnership is that it does not pay business income tax.