Sara wants to start her own business. She is not sure if she wants to be a sole proprietor or get a partner. She asks a financial adviser about the different ways in which she might finance her company. What would an adviser tell her is a disadvantage of getting a partner?
A) She is responsible for paying all shareholders.
B) She has to share all of the profits with the partner.
C) She has to go through a government application process.
D) She is responsible for all of the debts the business incurs.

B, She has to share all of the profits with the partner.

Explanation:

Sole proprietorship is when a business is owned by an individual and is not registered as a corporation.

A partnership on the other hand is a business owned by 2 or more persons and is registered as a corporation.

In the case of Sara, since the adviser is trying to tell her one of the disadvantages of partnership, the right thing to tell her is that she would be sharing all of her profits with the partner.

This revelation of profit sharing by the financial adviser to Sara will either encourage her to or discourage her from partner or be a sole proprietor respectively.

I hope this helps.

B) She has to share all of the profits with the partner.

Explanation:

Option B is partially true since it depends on the partnership agreement.

When a partnership is formed, an initial partnership agreement is made and it should include how the profits or losses will be distributed depending on the money that each partner invests or the amount of time each partner works in the business. Generally in all states, if the partnership agreement does not specify this distribution, then all the profits and losses must be distributed equally among the partners regardless of their basis in the partnership.

Sara and her potential partner must agree upon the distribution method of the partnership, since once it is formed, it is very difficult to change it since all the parties involved must agree with the proposed changes.

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