Future Business Leaders of America (FBLA) Entrepreneurship Practice Test

Under which business form are the debts of the business ultimately the debts of the owners if the business cannot pay?

1. Corporation

2. Sole Proprietorship

3. Partnership

4. Limited Liability Company

The correct answer is: Partnership

In a partnership, the debts of the business become the responsibility of the individual partners if the business is unable to meet its obligations. This is known as unlimited liability. Each partner can be held personally liable for the debts of the partnership, which means their personal assets may be at risk in the event of bankruptcy or business failure. This distinguishes partnerships from other business structures, such as corporations or limited liability companies, where the business is considered a separate legal entity and owners typically have limited liability protection. In a corporation or a limited liability company (LLC), owners and shareholders are generally not personally responsible for business debts beyond their investment in the company, protecting their personal assets. A sole proprietorship also has a different structure, where the owner has unlimited liability similar to a partnership, but it is only one individual. Therefore, the partnership structure is characterized by this shared responsibility among multiple owners, making it the most fitting choice for the question regarding debt liability.