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ACCA Applied Knowledge · Business and Technology · The purpose and types of business organisation

Three friends set up a business in which each contributes capital and shares profits equally. Under their agreement, they are personally liable for all of the business's debts without limit, and the business has no separate legal personality. Which type of business organisation does this describe?

The business is a partnership. Partners contribute capital, share profits and are personally liable without limit because a general partnership has no separate legal personality. A limited company or a limited-liability co-operative would shield its owners from the entity's debts, which does not match the facts given.

  1. AA private limited company
  2. BA partnershipCorrect
  3. CA co-operative society with limited liability for members

Explanation

A general partnership is not a separate legal entity, and the partners share profits and are personally liable for its debts without limit. A private limited company has separate legal personality and limits its members' liability to the amount unpaid on their shares. A co-operative society with limited liability would also protect its members, so it does not fit.

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