Mario and Johnny want to start a business. They have very little capital. They are new partners and largely unfamiliar with each other’s management practices. They are happy, however, to be organizing a business together in order to avoid full liability for the business. Which detail of this situation is a good reason for Mario and Johnny to create a general partnership?
A. Little capital
B. Avoiding full liability
C. Unfamiliar with each other’s management practices
Answer (2)
Mario and Johnny should create a general partnership primarily to avoid full liability, which helps protect their personal assets. Although having little capital and being unfamiliar with each other's management practices are factors, the shared liability aspect directly supports their goal of minimizing financial risk. Therefore, the best choice is B. Avoiding full liability.
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ANSWER:
A) Little capital
EXPLANATION:
The facts of this case support Mario and Johnny's general partnership. They may combine their resources and share management in a general partnership to **avoid personal accountability and overcome their "little capital" and unfamiliarity with each other's approaches. **
They may utilize this framework to overcome the challenges of starting a business on a budget and without much experience. Mario and Johnny would run the firm better as a general partnership rather than separately taking on its debts and responsibilities.
