Deck 38: Operation of Partnerships and Related Forms

Question 1

In a partnership,each partner has limited personal liability to partnership creditors.

Answer 1

False
Explanation: In a partnership,each partner has unlimited personal liability to partnership creditors.

Question 2

A partner in a trading partnership ordinarily has implied authority to borrow money for the partnership.

Answer 2

True
Explanation: A partner of a trading partnership has implied and apparent authority to borrow money for the partnership.

Question 3

A partner may personally profit from a partnership transaction when he or she deals in good faith with the partnership.

Answer 3

False
Explanation: A partner may not deal with the partnership when the partner has an interest adverse to the partnership or acts on behalf of another person with any adverse interest.For example,a partner may not profit personally by receiving an undisclosed kickback from a partnership supplier.

Question 4

A partnership does not have the authority to ratify the unauthorized act of partners.

Question 5

In all partnerships,profits are shared according to the amount of capital contributed by each of the partners.

Question 6

A partner may not compete against the partnership unless he or she obtains consent from the other partners.

Question 7

A partner is under no duty to maintain the secrets of the business.

Question 8

The standards and principles of agency law's respondeat superior are applied in determining the liability of the partnership and of the other partners for the torts of a partner and other partnership employees.

Question 9

LLP partners are personally liable for the actions of the business.

Question 10

In a partnership agreement,partners are not criminally liable when a partner commits a crime in the course and scope of transacting partnership business,even if they knew of the partner's criminal tendencies and placed him or her in a position in which he or she could commit a crime.

Question 11

Under the Revised Uniform Partnership Act partners owe each other loyalty.

Question 12

Silent partners have the duty to serve and bear the same liability for partnership debts as any other partner.

Question 13

A partnership will be bound by the legal admissions or representations of its partners.

Question 14

In a partnership,some classes of partners may have greater voting rights than others.

Question 15

A partner's express and implied authority constitutes his or her apparent authority.

Question 16

A partnership and its partners are usually liable for a partner's intentional torts.

Question 17

Partners have a right to be indemnified for expenditures they make for the partnership from their personal funds.

Question 18

When partners disagree concerning an action to be taken in the ordinary course of business,the disagreement will be resolved only if all the partners agree.

Question 19

Partners in a partnership cannot turn over sole authority to one partner to run the business.

Question 20

Any notice given to a partner is deemed to be a notice given to the partnership firm.

Question 21

Which of the following is true about implied authority?

A) It is the sole determinant of a partner's actual authority.
B) It is determined with reference to what is usual business for partnerships of the same general type.
C) It exists because it reasonably appears to a third party that a partner has authority to do an act.
D) It may contradict a partner's express authority.

Question 22

Lara is a partner at Matador Services,a management consulting firm.She makes an agreement with Regal InfoTech whereby Matador will provide management consulting services for $75,000 to Regal,on the condition that Regal pays her $5,000 personally.Which of the following is true of this situation?

A) Lara has placed her own interests above those of the partnership.
B) Lara has exceeded her actual authority.
C) Lara is competing against her partnership.
D) Lara has not exercised her duty to serve.

Question 23

In the absence of a specific provision in a general partnership agreement,partnership losses will be allocated:

A) equally among the partners irrespective of the allocation of partnership profits.
B) in the same proportion that profits are shared.
C) in proportion to the partners' capital contributions.
D) in proportion to the partners' capital contributions and outstanding loan balances.

Question 24

In a partnership,when a partner makes a secret profit through a business transaction,what is the remedy for such a breach?

A) Paying the other partners additional compensation
B) Hiring another individual to carry out the duties of the partner
C) Recovering the profits of the partner's competing venture
D) Returning the profit made in the transaction

Question 25

Gillie,Taft,and Dall are partners in an architectural firm.The partnership agreement is silent about the payment of salaries and the division of profits and losses.Gillie works full-time in the firm,and Taft and Dall each work half-time.Taft invested $120,000 in the firm,and Gillie and Dall invested $60,000 each.Dall is responsible for bringing in 50 percent of the business,and Gillie and Taft 25 percent each.How should profits of $120,000 for the year be divided?

A) Gillie $60,000,Taft $30,000,Dall $30,000
B) Gillie $40,000,Taft,$40,000,Dall $40,000
C) Gillie $30,000,Taft $60,000,Dall $30,000
D) Gillie $30,000,Taft $30,000,Dall $60,000

Question 26

Partners are not liable to their partnership for losses resulting from:

A) gross negligence.
B) reckless conduct.
C) intentional violation of the law.
D) honest errors in judgment.

Question 27

Tim is a partner at Starland Properties and gives one of Starland's customer lists to Sun Realty,the firm's leading competitor.In this situation,Tim has violated:

A) the duty to act with apparent authority.
B) the duty to indemnify partners.
C) the duty to account.
D) the duty to maintain confidentiality of partnership information.

Question 28

Morgan is a silent partner at Mathers & Sons,a general partnership.Because he is only a silent partner,he does not have:

A) the duty to contribute capital to the firm.
B) the duty to serve in the day-to-day operations of the firm.
C) the same liability for partnership debts as other partners.
D) the duty to act within actual authority.

Question 29

Gary and Felix are partners in a general partnership.Gary does 2/3^rd of the partnership work,while Felix does 1/3^rd of the work.Last year the partnership earned $300,000 in profits.Under the RUPA,how much of the $300,000 is Felix entitled to receive?

A) $200,000
B) $150,000
C) $100,000
D) $250,000

Question 30

A partner in a partnership firm should make all attempts to take decisions that are in the best interest of the firm.This is related to the concept of _____.

A) duty to serve
B) duty to act within actual authority
C) duty of care
D) duty to account

Question 31

In a partnership,partners may not compete against their own partnership unless:

A) they do not monetarily benefit from their competing venture.
B) they have been granted the apparent authority to do so.
C) they obtain consent from other partners.
D) they play the role of silent partners.

Question 32

A partner uses her own truck to pick up some partnership supplies,which she pays for with her personal check.This partner has the right to be _____ for payments made from her personal funds.

A) indemnified
B) investigated
C) adjudicated
D) indentured

Question 33

A partner of a firm that leases residential property to college students allows his daughter to live in a partnership-owned apartment.Based on this situation,this partner:

A) has a duty to relinquish his management rights for misusing partnership property.
B) has a duty to account for the use of partnership property.
C) has a duty to return the personal profits secured through this transaction.
D) has a right to be indemnified for payments made from his personal funds.

Question 34

Helen and Casey are partners.Helen contributes capital of $20,000 to the partnership and Casey contributes $10,000.They agree that Helen will receive 60 percent of all profits and that Casey will receive 40 percent.They have not decided how to share losses.The partnership makes a loss of $7,000.What is Casey's share of the loss?

A) $2,800
B) $4,200
C) $3,500
D) $5,500

Question 35

The _____ requires partners to undertake their share of responsibility for running the day-to-day operations of the partnership business.

A) duty to act within actual authority
B) duty to serve
C) duty of care
D) duty to account

Question 36

Mark and Bonnie are partners.Mark contributed $30,000 of capital to the partnership and Bonnie contributed $15,000.Mark does 70 percent of the partnership's work,while Bonnie does 30 percent.They agree that Mark will assume 60 percent of partnership losses and Bonnie 40 percent.They have not decided how to share profits.The partnership earns a profit of $90,000.What is Bonnie's share of the profits?

A) $45,000
B) $30,000
C) $27,000
D) $36,000

Question 37

Under what condition may a partner compete against the partnership business?

A) If the business is in the IT field
B) If all the partners have consented to the partner's activities
C) If the business is in a high demand field
D) If the partner pays a royalty to the partnership business

Question 38

Jim and Sarah establish a partnership business.Sarah ends up doing all the work related to the business even though they had agreed to split the labor.Jim may be in breach of his duty to what?

A) Duty to Serve
B) Duty to Have No Adverse Interest
C) Duty of Care
D) Duty to Make Profit

Question 39

According to the RUPA,a partner:

A) is entitled to a salary or wages.
B) is entitled to compensation based upon his capital contribution.
C) is entitled to an equal share of the profits.
D) is entitled to compensation based on the amount of time he contributes to the business.

Question 40

Helen and Casey are partners.Helen contributes capital of $20,000 to the partnership and Casey contributes $10,000.They agree that Helen will receive 60 percent of all profits and that Casey will receive 40 percent.They have not decided how to share losses.The partnership makes a loss of $7,000.What is Helen's share of the loss?

A) $2,800
B) $4,200
C) $3,500
D) $5,500

Question 41

Express authority:

A) is created by agreement of partners.
B) is based on what is usual business for partnerships of the same general type.
C) is the sole determinant of a partner's actual authority.
D) is established only in writing.

Question 42

A partnership's liability for the torts of a partner committed within the ordinary course of partnership business or within the authority of that partner is:

A) joint and several.
B) joint or several,at the option of the tort creditor.
C) joint only.
D) several only.

Question 43

Which of the following decisions must be approved by all the partners of a partnership business that provides accounting and auditing services?

A) Buying paper supplies for the partnership.
B) Making a contract to provide audit services.
C) Borrowing money to repay a partnership debt.
D) Hiring a secretary.

Question 44

_____ occur(s)when partners accept an act of a partner who had no actual or apparent authority to do the act when it was done.

A) Arbitration
B) Defamation
C) Indemnification
D) Ratification

Question 45

The apparent authority of a partner to bind the partnership in dealing with third parties:

A) would permit a partner to submit a claim against the partnership to arbitration.
B) must be derived from the express powers and purposes contained in the partnership agreement.
C) will be effectively limited by a formal resolution of the partners of which third parties are aware.
D) will be effectively limited by a formal resolution of the partners of which third parties are unaware.

Question 46

Which of the following partnerships can be classified as nontrading partnership engaged in providing services?

A) Dairy farming
B) General contracting
C) Real estate brokerage
D) Manufacturing

Question 47

A trading partnership:

A) borrows money to avoid cash flow problems.
B) engages in providing services.
C) has no substantial inventory.
D) buys but does not sell merchandise.

Question 48

Which of the following is true about a nontrading partnership?

A) Its regular business is buying and selling merchandise.
B) It has no normal borrowing needs.
C) It borrows money to avoid cash flow problems.
D) It has an inventory.

Question 49

How many partners must agree to modify a partnership agreement?

A) All partners must unanimously agree.
B) A majority must agree to the change.
C) More than one but not necessarily a majority.
D) Only one partner is needed to modify an agreement.

Question 50

Which of the following is applied in determining the liability of a partnership and of the other partners for the torts of a partner and other partnership employees?

A) Respondeat superior
B) De facto
C) Habeas corpus
D) Juris privati

Question 51

Don is a partner of the firm Shaw Associates,which offers recruitment services.Don entered into a contract with Bradman & Sons to sell the land on which the partnership business is situated for $85,000.Is this contract enforceable?

A) Yes,because Don has apparent authority to enter into contract with Bradman & Sons.
B) No,because Don has only express authority not actual authority.
C) Yes,because Don,being a partner,has implied authority to enter into contract.
D) No,because Don does not have the power to convey the partnership's real property.

Question 52

Stella,Bob,and Chris are partners in Sole Services,a general partnership that runs a small shoe store.Stella and Bob want to buy the building that they are currently renting,but Chris does not agree.How will this disagreement be resolved?

A) Sole Services will buy the building because this management decision can be made by a majority vote of the partners.
B) Sole Services will buy the building because one partner can never stand in the way of the will of the majority of partners.
C) Sole Services will not buy the building because this decision requires a unanimous vote of the partners.
D) Sole Services will not buy the building because all partnership management decisions require a unanimous vote of the partners.

Question 53

_____ authority exists because it seems reasonable to a third party that a partner has authority to do an act.

A) Fixed
B) Express
C) Apparent
D) Actual

Question 54

Which of the following is NOT true about the management powers of partners?

A) A partner whose name is not on the signature card filed with the bank does not have apparent authority to issue checks.
B) A partner's knowledge of material information relating to partnership affairs is imputed to the partnership.
C) A partner has implied and apparent authority to indorse and cash checks drawn payable to the order of the partnership.
D) A partner who has the authority to borrow money also has authority to issue negotiable instruments.

Question 55

Which of the following is true about partnership agreements?

A) The removal or delegation of a partner's management power eliminates that partner's apparent authority.
B) A partnership agreement may create classes of partners,some of whom may have greater voting rights.
C) In large partnerships,decisions such as hiring employees and making contracts require the unanimous agreement of all partners.
D) Unequal voting rights are often found in small partnerships.

Question 56

Lloyd is a partner in an ordinary partnership firm in the business of providing tax services.While serving a client on behalf of the partnership,Lloyd's partner Janet intentionally understates the client's taxable income on a federal tax return.When the true income is reported a few years later,the client is required to pay a penalty.The client sues the partnership and its partners.Which of the following is correct?

A) Janet is not liable to the client because she was acting on behalf of the partnership.
B) Lloyd is not liable to the client,unless he authorized Janet to understate the client's income.
C) The partnership is not liable to the client because the intentional tort is outside the scope of business.
D) Janet is not liable to the client because she was acting in the ordinary course of business.

Question 57

Vernon and Josh are partners in an accounting firm.They agree that only Josh has authority to make contracts to perform audits of clients,an agreement known by Mantron Company.Nonetheless,Vernon and Mantron contract for the partnership to audit Mantron's financial statements.Vernon takes the contract to Josh,who reads it and says,"OK,we can perform the audit." In this situation,Josh has _____ the contract.

A) nullified
B) modified
C) ratified
D) transferred

Question 58

In a partnership,partners may give everyone notice of a partner's authority or limitation on a partner's authority by filing a(n)_____ with the secretary of state.

A) special resolution
B) Article of Organization
C) memorandum of association
D) Statement of Denial

Question 59

What document gives authority to a managing partner to run the business?

A) Articles of Organization
B) Managing Articles
C) Articles of Incorporation
D) International Articles of Trade

Question 60

Together,express and implied authority constitute _____.

A) fixed authority
B) actual authority
C) apparent authority
D) traditional authority

Question 61

Shawnequa is a partner of Cost Hydrohut LLP,an accounting limited liability partnership.One of Shawnequa's partners negligently audits a client,with the result that a bank that relied on the client's audited financial statements suffers damages when the client fails to repay the loan.The bank sues Cost Hydrohut,but its assets are insufficient to pay the entire damages.Will the bank be able to collect the remaining damages from Shawnequa's personal assets?

Question 62

Under which of the following circumstances will Rita be held liable for the crime of her partner?

A) The partner's criminal tendencies were unknown to Rita.
B) The partner's crime was outside the scope of the partnership's business.
C) The state's criminal code does not view partnerships as legal entities.
D) The partner's crime was authorized by Rita.

Question 63

Frazier and Roz are partners.Frazier contributes $30,000 to the partnership,and Roz contributes $10,000.They agree that Frazier will assume 70 percent of partnership losses and that Roz will assume 30 percent.They make no agreement about how to share profits.The partnership has a profit of $60,000 in its first year.How much of the profits is Frazier entitled to receive?

Question 64

In a partnership,are partners liable for the crimes committed by another partner? Explain.

Question 65

Hannah is a managing partner of Andrusian Worldwide LLP,an accounting and consulting partnership.Acting within her implied authority,Hannah makes a contract for Andrusian to perform an audit for National Motors Company.The audit fee is $325,000.The performance of the audit takes more hours than Hannah expected,because Hannah has failed to determine the number of locations in which National Motors does business prior to setting the audit fee.As a result,Andrusian loses $50,000 on the audit.Has Hannah breached a fiduciary duty?

Question 66

What form of partnership prevents the partners from being personally liable for the actions of the business?

A) LLP
B) Incorporation
C) International Partnership
D) Domestic Partnership

Question 67

Sharon and Martha are general partners in the SM general partnership.Sharon,acting with authority,negotiated and signed for a $500,000 loan to SM from a bank.SM has not repaid this loan.The bank can recover its loan from:

A) Sharon only.
B) SM and Sharon;they are jointly liable only.
C) SM,Sharon,and Martha;they are jointly liable only.
D) SM,Sharon,and Martha;they are jointly and severally liable.

Question 68

Stella,Bob,and Chris are partners in Sole Services,a general partnership that operates a shoe store.One day Stella's ex-husband Dan comes into the store to buy shoes.Stella is still angry over the divorce.While Dan's back is turned to Stella,she stabs him with a knife,inflicting serious injuries.Dan wants to sue Stella,the partnership,and each partner.Who could be required to pay for Dan's injuries?

A) Stella only
B) Stella and the partnership only
C) Stella and each partner
D) Stella,the partnership,and each partner

Question 69

Donna is a partner of Don-Tel Lawn Care,a partnership in the business of providing lawn care services.While mowing a lawn using a partnership mower,Donna negligently runs over a piece of metal,sending pieces of metal flying through the air.One piece hits the client's patio door and shatters the glass.Is Donna liable to the client? Are Donna's partners liable to the client?

Question 70

Kate is a partner in a limited liability partnership (LLP)which provides accounting services.Acting within her authority,Allie,who is one of Kate's subordinates,negligently provides accounting services to a client.The client sues the LLP and its partners.Which of the following is incorrect?

A) The LLP is liable to the client.
B) Allie is liable to the client,and the judgment may be satisfied out of her personal assets.
C) Kate is not liable for Allie's negligence.
D) Kate is liable to the client,and the judgment may be satisfied out of her partner's personal assets.