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Harry, Ben, and Chico want to form a new business and be taxed as a partnership,...

Harry, Ben, and Chico want to form a new business and be taxed as a partnership, yet have the same liability protection as shareholders in a corporation. If they carry on as co-owners of a business for profit but never file a limited liability partnership (LLP) application or articles of incorporation with their state government,

I. they will be double taxed on all profits

II. they will have unlimited personal liability for business debts

(A) I only

(B) II only

(C) both I and II

(D) neither I nor II

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Answer #1

If Harry, Ben and Chico never file a LLP application or articles of incorporation with their state government, then this would be taken as a general partnership with unlimited liability to the debtors. Also, the general partnership is not taxed on its earnings but the partners would be individually taxed on their income. Thus

they will not be double taxed on all profits and they will have unlimited liability for business debts.

Thus the correct answer is (B).

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