Deck 37: Partnerships and Limited Liability Partnerships

Question 1

The majority rule controls decisions that significantly affect the nature of the partnership or that are outside the ordinary course of the partnership business.

Answer 1

False

Question 2

A limited liability limited partnership is a type of limited partnership.

Answer 2

True

Question 3

No partner is deemed to be an agent of the other partners and of the partnership.

Answer 3

False

Question 4

After a partner dissociates from a continuing partnership, the partnership is no longer bound by the acts of the dissociated partner, even on a theory of apparent authority.

Question 5

In a limited partnership, a limited partner has full responsibility for the partnership and for all its debts.

Question 6

A limited partnership cannot be dissolved by court decree.

Question 7

Limits on a partner's authority normally are effective only with respect to third parties who are notified of the limitation.

Question 8

On dissolution, the creditors of the partnership, but not the creditors of the individual partners, can make claims on the partnership's assets.

Question 9

In a limited partnership, a general partner's dissociation from the firm normally will lead to dissolution unless all partners agree to continue the business.

Question 10

A majority of the states treat a partnership as an entity for most purposes.

Question 11

If no fixed duration of the partnership is specified, the partnership is a partnership in perpetuity, which means that the partnership cannot be dissolved.

Question 12

The intent to associate is a key element of a partnership.

Question 13

A limited liability partnership may exempt its partners from personal liability for any partnership obligation.

Question 14

Devoting time, energy, and skill to partnership business is a partner's duty and is not a compensable service.

Question 15

The partnership is a pass-through entity and a taxpaying entity.

Question 16

A partner may pursue his or her own interests without automatically violating the partner's fiduciary duties to the partnership and the other partners.

Question 17

Every act of the partner concerning partnership business and "business of the kind" and every contract signed in the partnership's name bind the partner, but not the firm.

Question 18

One can join a partnership even if all other partners do not consent.

Question 19

On a partner's dissociation, the partner's duty of loyalty ends.

Question 20

Dissociation normally entitles the partner to buy his or her interest from the partnership.

Question 21

Fact Pattern 37-1B (Questions B10-B13 apply)
Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 37-1B. The partners decide to dissolve Equity Lending. Duke collects and distributes the firm's assets. This results in

A) nothing with respect to the firm's existence.
B) the continuation of the firm's business.
C) the termination of the firm's legal existence.
D) the temporary suspension of the firm's business.

Question 22

Fact Pattern 37-1B (Questions B10-B13 apply)
Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 37-1B. Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation results in

A) nothing with respect to Cornell or Equity Lending.
B) the automatic termination of Equity Lending's legal existence.
C) Cornell's liability for all of Equity Lending's debts.
D) Cornell's wrongful dissociation and liability for any damages.

Question 23

Commercial Credit & Finance is a lim?ited partner?ship. Derry, Eleni, and Frey are the general partners. Derry dies. The partnership can

A) continue only after a distribution of its assets.
B) continue only as a general partnership.
C) continue only if Eleni and Frey consent.
D) not continue because Derry's death dissolves the firm.

Question 24

Nazih and Ovidia are limited partners in Physicians Medical Center, a limited partner?ship. In terms of the firm's books and information regarding partnership business, Nazih and Ovidia are entitled to

A) access in proportion to their participation in management of the firm.
B) access to the parts that directly relate to their capital contributions.
C) no access.
D) complete access.

Question 25

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is

A) entitled to compensation in proportion to her effect on the business.
B) entitled to compensation in proportion to her effort.
C) entitled to compensation in proportion to her capital contribution.
D) not entitled to compensation.

Question 26

Buckley is a general partner in Cut-Rate Shipping, LLLP, a limited liability lim?ited partnership, which cannot pay its debts. Buckley is personally li?able for the debts

A) in proportion to the number of partners in the firm.
B) to no extent.
C) to the extent of his capital contribution.
D) to the full extent.

Question 27

Edgar, Jon, and Phoebe do business as Reliable Movers. Phoebe develops a debilitating illness and can no longer work. Phoebe

A) may dissociate from the partnership.
B) may not dissociate from the partnership without the other partners' consent.
C) must dissociate from the partnership.
D) may terminate the partnership.

Question 28

Nikki and Orlando are limited partners in Port City Exports, a lim?ited part?ner?ship. To avoid personal liability for partnership obligations, they must not

A) acquire an interest in the firm.
B) contribute property to the firm.
C) engage in activities independent of the firm's business.
D) participate in the firm's management.

Question 29

Corbin, a partner in Dentists & Orthodontists Clinic, applies for a loan with Evermore Bank allegedly on the firm's behalf but without the authorization of the other partners. Evermore knows that Corbin is not authorized to take out the loan. If Corbin defaults on the loan, liability for its unpaid amount will be imposed on

A) Corbin and Doctors, jointly.
B) Corbin only.
C) Doctors only.
D) Evermore only.

Question 30

Bayside Marina Company and Canoes & Kayaks Inc., share officers, directors, employees, property, and equipment. In reliance on Bayside Marina's reputation, Delivery Transport Inc. contracts to perform services for Canoes & Kayaks, but the firm does not pay. In terms of liability to Delivery Transport, a court is most likely to treat Bayside Marina and Canoes & Kayaks as

A) a pass-through entity.
B) a natural person.
C) a tax-paying entity.
D) a partnership by estoppel.

Question 31

Hillside Vineyards is a family limited liability partnership. All of the partners must be

A) natural persons only.
B) natural persons or persons acting as fiduciaries for natural persons.
C) persons acting as fiduciaries for natural persons only.
D) related.

Question 32

Oliana is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Oliana does not participate in, know about, or ratify, Oliana would be liable for

A) none of the obligations.
B) all of the obligations, jointly and severally.
C) all of the obligations, jointly but not severally.
D) only the contractual obligations.

Question 33

Fact Pattern 37-1B (Questions B10-B13 apply)
Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 37-1B. Bryn's dissociation from the firm results in

A) the automatic termination of the firm's legal existence.
B) the partnership's buyout of Bryn's interest in the firm.
C) the immediate maturity of all partnership debts.
D) Bryn's purchase of her interest in the partnership from the firm.

Question 34

Round-Up Ranch and Smith & Jones, Accountants, are limited liability partnerships (LLPs). The major features of an LLP are that it limits the personal liability of the partners and

A) it allows the partnership to continue as a pass-through tax entity.
B) LLP statutes do not vary from state to state.
C) it can only do business in the state in which it was formed.
D) only a few states have enacted LLP statutes.

Question 35

Noah and Orin do business as Personnel Providers, an employment agency. In most states, for purposes of suing and being sued, Personnel Providers, which is a partnership, would be treated as

A) an aggregate of the individual partners.
B) a natural person.
C) an entity.
D) a non-existent party.

Question 36

Fact Pattern 37-1B (Questions B10-B13 apply)
Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 37-1B. Bryn, Cornell, and Duke decide to admit Giselle as a new partner in Equity Lending. Giselle's liability for partnership debts incurred before her admission is

A) limited to her capital contribution to the firm.
B) limited to her personal assets.
C) nothing.
D) unlimited.

Question 37

Luke and Maya form Northwest Air Express, a general partnership. The essential elements of this partnership do not include

A) a sharing of profits and losses.
B) a joint ownership of the business.
C) an equal right to management in the business.
D) goodwill.

Question 38

Sweet Selections is a general partnership that sells candy, cards and flowers. Sweet Selections has ten partners. Jill and Amy each have a 25 percent interest in the partnership. All the other members have a 10 percent interest. To pass a management decision

A) a majority of the partners must agree to the decision.
B) both Jill and Amy must agree to the decision.
C) Jill or Amy must agree to the decision.
D) 30 percent of the partners must agree to the decision.

Question 39

Pualani and Quentin do business as partners in Rio Vista Builders, a residential construction firm. For federal income tax purposes, Rio Vista would be treated as

A) a pass-through entity.
B) a natural person.
C) a tax-paying entity.
D) a partnership by estoppel.

Question 40

Sable and Rex agree while talking on the phone to form a partner?ship-The Home Source-to deal in transfers of real property. To be enforceable, their agreement must

A) be filed in the appropriate state office.
B) be in writing.
C) involve the exchange of valid consideration.
D) not involve a third party.

Question 41

Fresco and Garcia form a partnership-HVAC Pros. Garcia's capital contribution is $10,000, and Fresco's is $15,000. The partnership agreement provides that profits are to be shared, with 40 percent for Garcia and 60 percent for Fresco. Later, Garcia makes a $10,000 loan to the partnership when it needs working capital. When the partnership is dissolved, its assets are $50,000, and its debts are $8,000. How should the assets be distributed?

Question 42

Sebastian was the manager of Thai Bistro, a restaurant specializing in Southeast Asian foods. Sebastian opened a bank account in Thai Bistro's name, signing the account signature card as "owner." Umeko, who was often at Thai Bistro and had free access to its office, told others that she was "an owner" and "a part?ner." She also opened a bank account in Thai Bistro's name, and signed the account signature card as "owner." Sebastian told Vijay, the owner of Wong Noodles, Inc., that Umeko was a member of a partnership that owned Thai Bistro. On this basis, Wong Noodles delivered its goods to Thai Bistro on credit. In fact, Thai Bistro was owned by a corporation. When the unpaid account totaled more than $10,000, Wong Noodles filed a suit against Umeko to collect. On what basis might Umeko be liable for the debt?