Deck 32: Partnerships

Question 1

A partnership is the association of two or more persons to carry on as co-owners a business for profit.The association:

A) must be established by filing Articles of Partnership with the Secretary of State.
B) must be established by a formal agreement.
C) means a voluntary relationship between the persons.
D) includes all direct descendants.

Answer 1

C

Question 2

Nicholas and Holly are partners in a toymaking shop.If Rudolph obtains a judgment against Nicholas for injuring Rudolph while Nicholas was on partnership business,Rudolph must try to collect from the partnership before going after Nicholas' personal assets.

Answer 2

True

Question 3

The common law of agency applies to relations between partners and it also applies to relations between partners and third parties.

Answer 3

True

Question 4

Elion was a partner in a partnership.Elion's death would be considered a wrongful dissociation.

Question 5

In the case of Hooper v.Hooper,the court found:

A) when the partnership was dissolved, one partner was entitled to property in kind in an amount by which his services had enhanced the value of the partnership.
B) when one partner unexpectedly became unable to contribute services and time to the partnership, there was an implied agreement that the other partner would be paid for the extra services he performed for the partnership.
C) the fact that one partner contributes greater skill and takes over management of a partnership business does not give rise to a right to extra compensation.
D) although the partners had an express agreement to pay one partner for extra services rendered to the partnership, such an agreement is unenforceable.

Question 6

Jeremiah was a partner in a partnership,but he quit unexpectedly when he got his feelings hurt over an internal decision.Dissociation has occurred.

Question 7

Charles and Becky are partners.If they have a disagreement,the Uniform Partnership Act will govern their respective rights with each other:

A) despite any written partnership agreement they may have signed.
B) only if they do not have a written partnership agreement that addresses the issue of dispute.
C) only if they agree to be bound by the UPA.
D) only if their written partnership agreement states that they will be bound by the terms of the UPA.

Question 8

Linda,a partner,is involved in the winding up of the partnership.A lucrative business opportunity for the partnership arises.Linda does not have the right to take on this new business.

Question 9

Jackie and Robert own an apartment building as partners.Cyndi,one of their tenants,gives Robert written notice she will be moving out at the end of the following month.Robert did not tell Jackie that Cyndi was moving.Has Cyndi properly given notice to the partnership?

A) Yes. Notice to Robert was notice to the partnership.
B) Yes, if it is determined that Robert acted negligently in failing to notify Jackie.
C) No. Cyndi has an obligation to notify both Robert and Jackie.
D) No. Jackie was not notified since Robert never told her Cyndi was moving.

Question 10

Which of the following events occurs first with respect to the ending of a partnership?

A) Termination.
B) Winding up.
C) Dissolution.
D) Distribution of proceeds.

Question 11

Lily is involved in the winding up of her partnership.Lily is not entitled to compensation for her work since she is a partner.

Question 12

Brock and Heidi agree to jointly run a fundraiser for the nonprofit children's hospital.Even if they don't have a formal,written agreement,they have formed a partnership.

Question 13

A partner always has the right,though not the power,to leave a partnership.

Question 14

Kyle,Pedro,and Madeline form a partnership.There is no agreement as to the duration of the partnership.The partnership is a partnership at will.

Question 15

The dissolution of a partnership means the same as its termination.

Question 16

A partnership can only be held liable for the partners' authorized acts.

Question 17

The rules set out in the UPA defining the liability of partners to outsiders can be modified by the partnership agreement.

Question 18

Alicia and Ted have a written agreement wherein they will share the losses of their joint business.This agreement is strong evidence they are partners.

Question 19

A partnership is liable for both the negligent and intentional acts of a partner if the acts were committed within the ordinary course of the partnership's business.

Question 20

Doyle contributed $10,000 when he became a general partner in the existing partnership of R & Z Heating.If Albert wins a judgment for $25,000 against R & Z on a claim that was incurred before Doyle became a partner,Doyle shares joint and several liability with his new partners for the whole obligation.

Question 21

Debbie is a partner with Adam and Marty.She sells her interest in the partnership to Craig.Which statement below is the most accurate?

A) Adam and Marty must approve the sale for Craig to become a full partner.
B) Either Adam or Marty must approve the sale of Debbie's interest.
C) Craig has a right to become a full partner once he buys Debbie's interest.
D) None of the above is correct.

Question 22

Judy believed that Ray and Don were partners in an automotive repair business.Ray and Don were not partners.Ray owned the business as a sole proprietor.Ray,however,allowed Don,his unemployed brother-in-law,to be around the business.When Judy was having her car repaired,Ray told her "my partner over there,Don,will give you a ride to work this morning so you can leave your car here.He will give you a ride back here after work and your car will be done." Judy allowed Don to drive her to work.While riding with Don,Don accidentally ran a stop light and caused an accident.Judy was hurt and claims that both Don and Ray are liable to her.Is she right?

A) Yes. This illustrates a partnership by estoppel.
B) No. Don was not a partner in the business.
C) No. Don was a dissociated partner.
D) No. There was no intent to have a partnership.

Question 23

Theresa and Bobbi bought a racecar together.They agreed to share all expenses and split net profits equally.There was no agreement as to the duration of the partnership.After about a year,Bobbi decided she was tired of the racing business and left the partnership.Bobbi did not violate the partnership agreement.Theresa claims Bobbi's leaving was wrongful.Is Theresa correct?

A) Yes, Bobbi was legally required to secure Theresa's permission before leaving the partnership.
B) Yes, Bobbi had a legal duty to stay in the partnership until Theresa was willing to agree to end the relationship.
C) Yes, Bobbi had a legal duty to stay in the partnership until a new partner could be found.
D) No, in a partnership at will, a partner has the right to leave the partnership at any time.

Question 24

Max,Jenny,and Craig are partners.They have purchased an elegant Victorian home and converted it into an office for their partnership.Craig decides to use the partnership's office to host some evening parties.Craig has a sideline business of arranging expensive gatherings and charging each person a handsome price to attend these "elite" parties.When Max and Jenny find out what Craig is doing,they demand that he pay them for the use of the property.How much money,if any,is Craig required to pay the partnership?

A) Nothing. He is free to use partnership property for his own uses.
B) Nothing, but he will be removed from the partnership for violating his fiduciary duty.
C) He must turn over any profits he earned from this activity.
D) He must pay the fair market value for the use of the house.

Question 25

Randy,Joan,and Arnie are partners.Their agreement did not address dissociation nor how long the partnership would last.Randy decided to leave the partnership.When Randy serves notice he intends to withdraw:

A) the partnership can either buy him out and continue in business or wind up the business and terminate the partnership.
B) the partnership terminates.
C) the partnership winds down.
D) the partnership estoppes.

Question 26

Which of the following would be evidence that two people intend to be partners?

A) An agreement to share profits of a business.
B) Referring to each other as "partners."
C) Agreeing to share in the business's losses.
D) All of the above are evidence of a partnership.

Question 27

Lori and Dan own a small restaurant as partners.Dan works several hours a day cooking,waiting on tables,doing the books,and so forth.Dan believes he is entitled to be paid at least a standard wage for all his work since,at the present time,the part-time kitchen helpers earn more than he does! Lori claims Dan is not entitled to anything other than one-half the net profits.Is Lori right?

A) Yes. The UPA states a partner may not collect a "wage" from the partnership business under any circumstances.
B) Yes, as there is no agreement between Lori and Dan allowing for either of them to be paid wages for work done at the restaurant.
C) No. Dan may collect only minimum wage, as required by federal law.
D) No. Dan may collect a fair wage for the work he has performed.

Question 28

Sandy,Ramon,and Bonnie were partners.Sandy dissociated from the partnership.Bonnie and Ramon decided to continue the business.When Sandy dissociated,there was a $50,000 debt owed to Great State Bank.Which statement is correct?

A) Sandy remains liable on the $50,000 debt owed to Great State Bank.
B) Only Ramon and Bonnie are liable for the $50,000 debt owed to Great State Bank.
C) The debt is extinguished as a result of the dissociation.
D) Whether Sandy remains liable depends on whether she filed a statement of dissociation.

Question 29

Astrid and Razi formed a partnership in which they agree to share profits 60 percent to Astrid and 40 percent to Razi.Losses will be shared:

A) equally, unless otherwise agreed.
B) 60 percent to Astrid and 40 percent to Razi, unless otherwise agreed.
C) according to their capital contributions to the partnership.
D) in whatever proportion provides the greatest tax advantage for the partners that year.

Question 30

If Kay,a partner in an auction business,has a personal creditor who is aggressive about collecting the debt:

A) Kay can sell her share in the partnership to repay the debt, regardless of what her partners want her to do.
B) the creditor cannot attach the partnership property to pay off the debt.
C) the creditor can attach partnership profits by obtaining a charging order.
D) Kay cannot meet her obligation to repay her personal creditor through her partnership assets. Her personal obligations will have to be paid through her personal funds or she will have to dissociate from the partnership and force the partnership to buy her share.

Question 31

Art and Alma made capital contributions of 60% and 40% respectively to their newly formed partnership,AA & Associates.They did not have a written partnership agreement.At the end of the first year,the partnership made a profit of which Alma now claims half.However,Art maintains he should receive 60%.Who is correct?

A) Art, since the UPA presumes that profits and losses are divided in proportion to capital contribution.
B) Art, since it would only be fair.
C) Alma, because she works in the business.
D) Alma, as the UPA provides that profits are split equally unless the partners agree otherwise.

Question 32

Ending a partnership involves which of the following three steps?

A) Dissolution, winding up, and termination.
B) Dissociation, winding down, and consummation.
C) Failure, dividing up, and paying off.
D) Dissociation, agreement, and dissolution.

Question 33

Anne and Mike were winding up their partnership.Mike was approached by a person who wanted the partnership to do some work for him.Mike agreed that the partnership would do the work.Generally speaking,in such a situation:

A) Anne is not liable since the partnership was in the winding up phase.
B) Anne is not liable since she did not consent to the work.
C) Anne is not liable since Mike's conduct was wrongful.
D) Anne is liable unless she filed a statement of dissolution with the Secretary of State within 90 days of when Mike entered the contract.

Question 34

Which of the following is a rightful dissociation?

A) A partner in a partnership at will serves notice that he intends to withdraw.
B) A partner in a term partnership withdraws before the end of the term.
C) A partner in a term partnership becomes bankrupt.
D) A partner violates the partnership agreement.

Question 35

Dusty dissociated from a partnership.To protect himself from debts of the partnership after he leaves,Dusty should:

A) secure an indemnity bond.
B) file a statement of dissociation with the Secretary of State.
C) execute a formal written agreement with the remaining partners.
D) demand that the partnership terminate.

Question 36

Kayla and Marshall formed a partnership.Marshall incurred a debt in the ordinary course of the partnership business.If the debt is not paid,the creditor may sue:

A) only Marshall.
B) only the partnership.
C) the partnership and the partners together or in separate lawsuits or in any combination.
D) only Marshall and the partnership in a lawsuit together or the creditor loses any right to sue the partnership.

Question 37

At what stage are the partnership debts paid and the proceeds distributed to the partners?

A) During dissolution.
B) During winding up.
C) During termination.
D) During dissociation.

Question 38

A group of accounting alumni decided to hold a fundraiser to establish a scholarship for an accounting student.This enterprise is:

A) a limited partnership.
B) a general partnership.
C) a charitable partnership.
D) None of the above.

Question 39

Gary and Herman are partners in a lawn mower repair business in Ohio.While Gary is on vacation,visiting his sister in Georgia,his sister's neighbor has trouble with her mower and Gary fixes it for her.She insists on paying him.Gary:

A) may keep the payment since he did the work while he was on vacation.
B) must turn the money over to the partnership because he earned it doing the kind of work that the partnership does.
C) may not accept the money because it would create a conflict of interest.
D) may not accept the money because it would mean he was taking a business opportunity away from the partnership.

Question 40

Nancy was a partner of a small business.She could see that the business was beginning to fail and that it was very unlikely it would recover.Not wanting to lose her investment,she asked that the court require the partnership to dissolve since she did not have a legal right to withdraw at that time.Does a court have the authority to order a partnership to dissolve?

A) Yes. A court can dissolve a partnership when it is convinced that the partnership is unlikely to succeed.
B) Yes. Under the UPA, if a partner can show the court the business suffered a loss the year before the case was filed, the court can dissolve the partnership.
C) No. A court can only dissolve a partnership at the request of all the partners.
D) No. A court does not have authority to dissolve the partnership.

Question 41

Dennis and Claudia were partners who operated a retail store.They agreed to end the partnership.Dennis agreed to stay at the store and oversee the going-out-of-business sale.Claudia agreed to deal with the accountants and other related matters not directly related to the hands-on operation of running the store.Claudia received notice that the store's liability policy would expire on July 1.She decided not to renew the policy and let it lapse.The going-out-of-business sale would not be completed until August 1.In July,a customer slipped and fell in the store.When Dennis learned that Claudia had allowed the liability policy to lapse,he was very upset and claimed he should not be liable for the customer's injury.Is Dennis liable to the customer? Explain.

Question 42

Village Bank believed that Spencer and Nadia were partners in an e-business.Spencer and Nadia were not partners.Spencer owned the business as a sole proprietor.Nadia,however,was a close friend of Spencer.When Spencer visited Village Bank in an effort to obtain a $10,000 loan,Nadia went with him.During the conversation with the banker,Spencer referred to Nadia as "my partner." Village Bank made the business loan believing that Spencer and Nadia were partners.Spencer defaulted on the loan.Village Bank claims that both Spencer and Nadia are liable on the loan.Will Nadia be liable on the loan?

Question 43

Ramiro is dissociated from the partnership he helped form ten years ago.If his partners want to continue the business,what must they do? Does it make any difference if the dissociation was wrongful?

Question 44

Identify and briefly discuss the management rights and duties of a partner.

Question 45

Andy,Becky and Charlie formed a partnership.Their business was to create Web pages for students.They would take a person's academic and career information and make an attractive Web page.Andy supplied the computer and technical advice.Becky was the business manager.Charlie did the bulk of the marketing.Charlie and Becky became irritated with Andy,as it seemed they did more work than he did.Charlie and Becky decided to end their partnership with Andy.During the winding up process,how are the assets of the partnership paid out?

Question 46

Jack and Jill were living together.Jack wanted to start a small retail store,but did not have good credit.Jill,whose credit was excellent,signed loan agreements with Jack so he could borrow the money to start the business.Jack used business cards that stated he was the "owner" of the business.He and Jill filed separate tax returns.Jack stated he was self-employed and claimed the business was a sole proprietorship.The money that was earned from the store was placed into a joint checking account owned and used by Jack and Jill.When there were significant decisions to be made about the business,such as deciding to franchise the business,the decision was made jointly by Jack and Jill.
Five years after the business was started,Jill left Jack.She claimed she was entitled to one-half the business's profits since she and Jack were partners.Jack disagreed and claimed they never had a partnership.Discuss Jill's claim.