Foreign Service Officer Test (FSOT) Practice Exam

In which form of ownership do partners share liabilities and profits?

1. Sole proprietorship

2. Partnership

3. Corporation

4. Limited liability corporation

The correct answer is: Partnership

The form of ownership where partners share both liabilities and profits is the partnership. In a partnership, two or more individuals come together to operate a business, and they agree to share the responsibilities of managing the business as well as the profits generated from it. This cooperative effort fosters a collaborative environment where the partners can leverage each other’s skills and resources. In a partnership, all partners typically have a shared responsibility for the debts and obligations of the business, meaning that they can be held personally liable for business losses or legal actions. This contrasts sharply with other ownership forms, such as corporations, where liability is limited to the extent of their investment in the business. Therefore, while partners share profits based on their agreed-upon terms, they are also equally subject to the liabilities encountered during the course of conducting business together.