Deck 30: Creation and Operation of a Partnership

Question 1

Explain the nature of partnership liabilities. ​

Answer 1

Unless their agreement provides otherwise, partners have joint liability on all partnership contractual liabilities and joint and several liable for all torts.  If the partnership does not have adequate assets to pay the firm's debts or liabilities, the general partners have individual liability for the full amount of the debts or liabilities.  If all the partners but one are insolvent, the remaining solvent partner must pay all the debts. The solvent partner has a right of contribution but may be unable to collect.  A partner who withdraws is liable for all partnership debts up to the time of the withdrawal. ​

Question 2

In a partnership, majority rule applies to such actions as an assignment for the benefit of creditors

Answer 2

False

Question 3

When a partner makes an honest mistake (and does not commit negligence)while working on behalf of the partnership :

A)Both the partner and the partnership are excused from liability.
B)The entire firm is liable if third parties are involved.
C)The other partners are equally liable.
D)The partner who made the mistake is liable if third parties are involved.

Answer 3

A

Question 4

In a case of a false impression of a partnership, the law will frequently hold that the apparent partners are estopped from denying that a partnership exists.

Question 5

Mark and James established a partnership to deal in textiles. Both of them contributed equal capital to the partnership. Which of the following is true?

A)Mark and James have the right to participate in the management of the partnership
B)Mark can be held liable for James committing robbery.
C)Neither Mark nor James has the authority to bind the partnership without the signature of the other.
D)Neither Mark nor James has the authority to endorse checks without the signature of the other.

Question 6

If a partner acts as an agent for the partnership, the resulting contract:

A)Would not be binding on the other partners.
B)Would not be enforceable by law.
C)Cannot be avoided by the other partners.
D)Is void unless the other partners ratify it

Question 7

In the absence of a statute to the contrary, a written partnership agreement need not be in a particular form.

Question 8

What is the effect of the right of a partner to participate in management of the business?

A)It allows one partner to totally run the business.
B)The exercise of this right often leads to more agreement by the partners.
C)Every partner may hire family members to work in the business.
D)It allows partners to maintain control over their investments.

Question 9

Personal creditors of one partner can force the sale of specific pieces of partnership property.

Question 10

Which of the following should be contained in the articles of partnership?

A)Biographical details of each partner
B)Each partner's personal address
C)Allowance of withdrawals of profits.
D)Names of every partner's guarantor

Question 11

A written partnership agreement might help avoid some disputes over rights and duties. ​

Question 12

What does a partner's duty to exercise loyalty and good faith mean?

A)Even a trivial breach of the partnership agreement will justify dissolution.
B)The partnership contract must be observed scrupulously.
C)A partner may seize an opportunity that conflicts with the interests of the partnership only if he does not use assets of the partnership in the transaction.
D)A partner must put the firm's interest above personal advantage until profits are made.

Question 13

Which of the following best describes the articles of partnership? ​

A)It is a written agreement of all the partners.
B)It is an unwritten agreement of the founding partners.
C)It is an implied agreement of all the partners.
D)It is a verbal agreement of the primary partners to form a partnership.

Question 14

Each partner has the duty to inform the other partners about matters relating to personal profits from sources other than the partnership that do not relate to the goals of the partnership .

Question 15

Brian, Kirk, and Jim established a partnership with equal capital contributions. However, Kirk provided an additional contribution in the form of a loan to the company. Which of the following is true?

A)Brian can withdraw capital advances from the partnership.
B)Any of the partners can withdraw their capital contribution or advances at any time.
C)Kirk can withdraw his capital advance after its due date.
D)Jim can withdraw capital advances from the partnership. ​

Question 16

Zen Products, a lumber wholesaler, operates in a state where individual sales are prohibited for wholesalers. If one of the partners sells one sheet of plywood to an individual, the contract is likely to be:

A)Not binding on the firm.
B)Binding on the firm.
C)Enforceable on the selling partner.
D)Enforceable in a court of law.

Question 17

Every partner has the duty to abide by majority vote.

Question 18

A partner who commits a tort has liability for indemnifying the partnership for any loss it sustains.

Question 19

By virtue of the existence of a partnership, each partner has the authority to enter into binding contracts on behalf of the partnership.

Question 20

If a partnership agreement does not fix the ratio of sharing the profits and the losses, they are to be shared in proportion to the contribution of capital.