FLK1 · Multiple-choice practice
FLK1 Business Law — Question 7
Try this question in the test bank →Question
Sarah and Mike have decided to start a business together selling handmade jewellery. They have known each-other for a long time and they believe they will collaborate effectively. They have agreed to split profits and losses equally, but are hesitant to take any formal steps without obtaining some legal advice. They have not formed a company, but are in the process of drafting a partnership agreement. Which of the following best characterises the type of organisation their business will operate as, at this stage of their relationship?
Answer and explanation
Correct answer: A. Partnership at will
The legal status of Sarah and Mike’s business before they form a company will be a partnership at will, as they have not yet formed a partnership agreement or registered as a limited liability partnership. This means that they will be personally liable for the debts and obligations of the business, and will have equal rights to share in profits and losses. Section 1(1) of the Partnership Act 1890 defines a partnership as “the relation which subsists between persons carrying on a business in common with a view of profit”.
Original newsletter explanation ↗Continue in the test bank for scoring, feedback, progress tracking and timed mini mocks.
More FLK1 Business Law questions →