Deck 30: Formation and Internal Relations of General Partnerships

Question 1

What is considered "partnership property" is determined primarily by the partners' intentions.

Answer 1

True

Question 2

In some corporations, only the shareholders are taxed; in others, both the corporation as an entity is taxed and the shareholders are taxed as well.

Answer 2

True

Question 3

A limited liability company (LLC) provides limited liability to all of its owners and permits all of its owners to participate in management.

Answer 3

True

Question 4

Corporations today outnumber unincorporated business associations.

Question 5

Under the RUPA, a partnership agreement may be written or oral, but not implied.

Question 6

A business trust, also called a Massachusetts trust, was devised to avoid burdens of corporate regulation, but it is no longer in use today.

Question 7

A corporation may not be a partner in a partnership.

Question 8

The form of business association known as a partnership can be traced to ancient Babylonia and classical Greece and was used in England during the Middle Ages.

Question 9

Under the common law, a partnership is generally considered to be a legal entity rather than an aggregate of individuals.

Question 10

All states have authorized the formation of limited liability companies.

Question 11

In a business trust, the trustees are generally not personally liable for the debts of the business.

Question 12

A person who receives a share of the profits of a business is presumed to be a partner.

Question 13

Sharing of gross returns establishes a partnership.

Question 14

Partners may elect to have the partnership not be a separate taxable entity, so that only the partners are taxed.

Question 15

Under the RUPA, no person may become a member of a partnership without the consent of all the partners.

Question 16

A partnership name may be the name of the partners or any one of them.

Question 17

Michelle and Margaret agree to form a partnership.The partnership contract between Michelle and Margaret does not have to be in writing in order to be enforceable in the courts.

Question 18

All 50 states have adopted the Revised Uniform Partnership Act.

Question 19

A partner cannot assign his interest in the partnership without dissolving the partnership.

Question 20

A general partnership may be formed for a charitable purpose.

Question 21

The choice of the most appropriate form of business enterprise cannot be determined in a general way, but depends on the particular circumstances of the owners.

Question 22

Income from some types of business entities is taxed twice.

Question 23

The proportion in which partners bear losses depends upon their relative capital contributions.

Question 24

Because the statute of frauds does not apply expressly to a contract for the formation of a partnership, usually no writing is required to create the relationship.

Question 25

General partnerships are frequently used in finance, accounting, real estate, and law.

Question 26

Arthur, Betty, and Clara each inherit an undivided one-third of an apartment complex.Instead of selling it, they decide to continue to operate it for the next few years as a sideline to their other occupations just to see if they can earn some extra money.What are they?

A)A partnership
B)Co-owners only
C)A corporation
D)Tenants in common

Question 27

A judicial lien against a partner's transferable interest in a partnership is known as a(n):

A)legal aggregate.
B)delegation of assets.
C)charging order.
D)assignment.

Question 28

A partner who has no right to participate in control of the business and who has limited liability is a:

A)general partner.
B)nominal partner.
C)secret partner.
D)limited partner.

Question 29

Which of the following is not true regarding a partnership name?

A)The name selected may not be the same as or deceptively similar to the name of any other existing business.
B)It may be a fictitious name.
C)It may not be likely to indicate to the public that it is a corporation.
D)It may not be the name of any one of the partners.

Question 30

Which of the following would lack the capacity to become a partner?

A)A business trust
B)A retired person over 74
C)A corporation
D)None of these lack capacity; any of them could become a partner.

Question 31

In all types of business entities, the owners can fully share in the management and control of the business.

Question 32

A joint venture is necessarily of short duration.

Question 33

A distinguishing characteristic of a business trust is that:

A)the trust estate is devoted to the conduct of a business.
B)each beneficiary must have the consent of all the other beneficiaries in order to sell or transfer his interest in the trust.
C)the trustees and beneficiaries share the functions of management and control.
D)All of these.

Question 34

Co-ownership of the means or instrumentality of accomplishing a single business transaction or a limited series of transactions ordinarily results in a:

A)partnership.
B)joint venture.
C)corporation.
D)R & D partnership.

Question 35

Which of the following is NOT an advantage of a partnership?

A)Partners' income taxes may be less than the income taxes would be on a corporation.
B)Each partner has limited liability.
C)It is possible to bring together more managerial skills than in a sole proprietorship.
D)It is possible to bring together more capital than in a sole proprietorship.

Question 36

The newly formed Bright Partnership cannot commence business until it meets its state's required minimum amount
of capitalization.

Question 37

In which of the following situations would the persons be partners?

A)A and B jointly own shares of the capital stock of a corporation, have a joint bank account, and have purchased real estate as tenants in common.They share the dividends on the stock, the interest on the bank account, and the net proceeds from the lease of the real estate.
B)A and B buy and sell real estate continuously over a five-year period, conducting a business of trading in real estate.They do not consider themselves partners.
C)A, B, and C each inherit an undivided one-third interest in a restaurant and decide to sell it because the market is such that they are assured a good price.
D)All of these.

Question 38

The RUPA treats a partnership as a legal entity in all but which of the following respects?

A)Title to partnership property
B)Continuity of existence
C)Legal actions by and against the partnership
D)Unlimited liability for partnership obligations

Question 39

A sole proprietorship is formed without any formality, is not a separate taxable entity, is dissolved upon death of the owner, and has unlimited liability for the owner.

Question 40

If no specific agreement exists, the partners bear losses in the same proportion in which they share profits.

Question 41

Which of the following is true of a partner's fiduciary duty?

A)The RUPA's provision regarding the fiduciary duty is not exclusive, but leaves further development of the fiduciary duty of partners to the common law of agency.
B)The RUPA provides that a partner does not violate the duty of loyalty merely because the partner's conduct furthers the partner's own interest.
C)The fiduciary duty extends to the formation of the partnership, even when the parties are negotiating at arm's length.
D)The duty not to compete continues for a reasonable time after dissociation.

Question 42

Which of the following expresses the right one has to choose her partners?

A)Partnership by estoppel
B)Delectus personae
C)Entity theory
D)Fiduciary relationship

Question 43

Terry and Ernest agree to become partners in advertising and promoting the Midway Fair to be held three years hence.If they agree orally, will the partnership agreement be enforceable?

A)Yes, since no writing is required
B)Yes, as long as a division of profits is achieved
C)No, because the venture cannot be performed within one year
D)No, due to arguments about terms

Question 44

Marilyn, George, and Christine pool their money to buy land for a vegetable garden.They plan to sell the produce at a roadside stand that summer.Are they partners?

A)Yes, since they co-own the land
B)No, because they each control the use of the land
C)Yes, because if there's a loss in the land's value, they will all share that loss
D)No, they are merely joint venturers

Question 45

Under the RUPA, a partner must manage the partnership affairs without duty of care.

A)ordinary
B)culpable
C)gross
D)any

Question 46

The UPA grants each partner the right to an account whenever:

A)his partners wrongfully exclude him from the partnership business.
B)a partner makes a profit in violation of his fiduciary duty.
C)circumstances render it just and reasonable.
D)All of these.

Question 47

Which of the following would be the most convincing evidence of a partnership?

A)An agreement to share in the management of a business
B)Agreements to share gross returns
C)An agreement to share losses
D)An agreement to pay a firm manager a percentage of the profits for his salary

Question 48

In deciding whether property owned by a partner before formation of the partnership and used in the business is a capital contribution that belongs to the firm, a court will consider which of the following?

A)Whether the property was improved with partnership funds
B)Whether the property was carried on the books of the partnership as an asset
C)Admissions or declarations of the partners
D)All of these would be considered.

Question 49

Under the RUPA, a loan from a partner to the partnership is treated the same as loans of a person not a partner, subject to:

A)fraudulent transfer law.
B)the law of avoidable preferences under the Bankruptcy Act.
C)general debtor-creditor law.
D)All of these.

Question 50

General Widget partnership assets amount to $34,000 after liquidation.Frank, Gene, and Hank, equal partners, each contributed $3,000 into the capital pool at the inception of the business.Gene later loaned the business $5,000.They owe $23,000 to creditors for inventory.What will Gene get in distribution, assuming there is no agreement on the distribution of profits?

A)$7,000
B)$5,000
C)$8,000
D)$11,000

Question 51

The Oak Grove Partnership decided it would buy personal computers for use by each partner.Unknown to the other partners, Cromwell, a partner, had an ownership interest in a computer store and thought he could get the computers for the partnership at the best price because of his inside position.He did, in fact, obtain eight computers at only $150 above the manufacturer's price, which was $250 less than the next lowest bid for each computer.What consequence?

A)Because Cromwell did not tell his partners of his inside position with the computer store, there will be no sale.
B)Since Cromwell obtained the lowest price available, the deal will go through.
C)Cromwell will have to give his part of the sales profits to the partnership.
D)Cromwell will have to rescind the contract and go with the next highest bidder.

Question 52

Absent an agreement otherwise, upon dissolution, a partner is entitled to which of the following after payment of partnership creditors?

A)A share of profits in proportion to capital contribution
B)A share of profits based on the degree of participation in management
C)Under the UPA, repayment of his capital contribution during the winding up of the firm
D)The UPA requires that the partners have an agreement or else they must seek a court order distributing the remaining assets

Question 53

Clark and David are partners.Clark has contributed $25,000.David has contributed only his time and skill.On dissolution, after all firm debts are paid, $20,000 in assets remains.Which of the following is NOT correct?

A)The $20,000 remaining after payment is profit that will be equally divided.
B)The partnership has sustained a loss of $5,000.
C)David is not entitled to any part of the $20,000.
D)David has no obligation to reimburse Clark for any loss.

Question 54

In which of the following situations will the inference of the existence of a partnership be drawn from the receipt of profits of a business?

A)Where payments of a debt are made to a creditor in installments from the profits of the partnership
B)Where wages are paid to an employee who is not also an owner
C)Where an annuity is paid to the widow of a deceased partner from partnership profits
D)Neither the creditor, the employee, nor the widow in these situations will be considered a partner under the guidelines in the RUPA.

Question 55

Which of the following is the correct definition for a partnership?

A)An association of two or more persons with one or more general partners and one or more limited partners
B)A legal entity ordinarily consisting of an association of numerous individuals
C)An association of two or more persons to carry on as co-tenants in business
D)An association of two or more persons to carry on as co-owners a business for profit

Question 56

White, Gray, and Greene enter into a contract to form a partnership, but the contract says nothing about the sharing of profits and losses.Which of the following will take place?

A)Profits and losses will be shared in a ratio based on the dollar amount of their capital investments.
B)Profits will be shared equally; losses will be absorbed based on dollar amount of capital investment.
C)Profits will be based on amount of time each partner spends working for the firm; losses will be shared equally.
D)Profits and losses will be shared equally.

Question 57

Sue, Barb, and Carlotta agree to put in $1,000 each to set up a shelter for lost animals.They each work two days a week.Donations fund the day-to-day operations.Do they have a partnership?

A)Yes, since each has control of the operation
B)Yes, because they are all co-equals in ownership of the shelter
C)No, because they have made no formal agreement
D)No, because there is no business for profit

Question 58

The principal legal duties imposed upon partners in their relations with one another include:

A)the fiduciary duty or the duty of loyalty.
B)the duty to compensate other partners for their time and efforts spent on partnership business.
C)a duty to devote full time and expertise to the partnership.
D)All of these.

Question 59

Juan, a partner in the Bell Partnership, in violation of a specific term in the partnership agreement restricting the extension of credit of more than $5,000 without the written consent of all the partners, extends credit of $6,500 to Brittany.Juan has violated the duty of:

A)obedience, and he can be held personally liable to his partners for any unpaid portion of the $6,500.
B)obedience, but he cannot be held personally liable for the unpaid portion of the debt.
C)care because he owed the partnership a duty to act in good faith.
D)loyalty, and he is therefore personally liable to the partnership for $6,500.

Question 60

A distribution in a partnership may be:

A)a payment made to compensate a partner for services rendered to the partnership.
B)a division of profits.
C)repayment of a loan to a partner.
D)All of these.

Question 61

Drew, Elmer, and Frank are partners in the DEF partnership.The partnership is being dissolved.It has $200,000 in cash assets and it owes $410,000 to creditors.Profits and losses of the partners are shared equally, although Drew contributed $100,000 in capital; Elmer contributed $50,000 in capital; and Frank contributed $25,000 in capital.Which of the following is correct with regard to the responsibility of each partner?

A)Each partner is responsible for $70,000 of the money owed to creditors.
B)Elmer will have to contribute additional capital in order to settle the partnership affairs.
C)Drew will have to contribute additional capital in order to settle the partnership affairs.
D)All of these are correct.

Question 62

What is an assumed name statute? Why have many states adopted such statutes?

Question 63

Identify six factors affecting the choice of the most appropriate form of business enterprise.Name the nine forms of business associations discussed in the chapter.

Question 64

Identify six rights the law provides to partners.

Question 65

The Oak Grove Partnership decided it would buy personal computers for use by each partner.Cromwell, a partner, had an ownership interest in a computer store.He thought he could get the computers for the partnership at the best price because of his inside position, and he told his partners at Oak Grove about his position.He did obtain eight computers for $150 over manufacturer's price, which was $250 less per computer than the next lowest bid.What consequence?

A)There was a sale, but no profit to the computer store.
B)There was a sale, but the computer store would only receive a percentage of the profit equal to Cromwell's ownership interest in the store and the partnership would receive the balance.
C)There was a sale, and the computer store would receive the profit of $150 per computer.
D)There would be no sale, because Cromwell had an interest in both businesses.

Question 66

Colleen, Joanna, and Ellen form Capital City Company, a partnership.Colleen contributes expertise; Joanna, $15,000; and Ellen, $20,000.After a year, Joanna adds $12,000 as a loan.Ten years later, Capital owes $44,000 to creditors, total assets are $112,000, and they decide to dissolve the business.How will these assets be distributed and what will each receive?

Question 67

Identify which forms of business organization provide the owners with limited liability for the business's obligations
and which forms of organization allow the owners to participate in the management and control of the business.

Question 68

Assume that you and your best friend have decided to form a partnership after graduation.You have both studied business law, so you both know the importance of having a written partnership agreement.Summarize the clauses that you would include in your partnership agreement.