Partnerships and Limited Liability Partnerships question bank

Question
TRUE/FALSE QUESTIONS

A1. An association cannot be a partnership without an express agreement.

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B1. The Uniform Partnership Act has done much to reduce controversies in the law relating to partnerships.

B2. For most purposes, the law recognizes a partnership as an aggregate of its members.

A3. A sharing of profits from the sale of the goodwill of a business

B3. Joint ownership of property in and of itself creates a partnership.

A4. A corporation can be a partner.

B4. A partner may pursue his or her own interest without automatically violating the fiduciary duties that he or she owes to the firm.

A5. A partner may use and possess partnership property for any purpose.

B5. A partner¡¯s fiduciary duties may be waived or eliminated in the partnership agreement.

A6. A partner owes a partnership and its partners a duty of gross negligence and reckless conduct.

CHAPTER 36: PARTNERSHIPS AND LIMITED LIABILITY PARTNERSHIPS

117

B6. General principles of agency law pertain to a partner¡¯s authority to

bind a partnership in contract.

A7. The extent of implied authority is generally broader for agents than

for partners.

B7. Any limit on a partner¡¯s capacity to act on the partnership¡¯s behalf

does not affect a third party who does not know about it.

A8. A partner cannot ¡°wrongfully¡± dissociate from a partnership.

B8. In most states, a general partner is jointly and severally liable for all

partnership obligations.

A9. A partnership dissolves when a partner ceases to be associated with

the carrying on of partnership business.

B9. On a partner¡¯s dissociation, his or her interest in the partnership

must be purchased.

A10. On a partner¡¯s dissociation, his or her right to participate in the

management and conduct of the business terminates.

118

TEST BANK A¡ªUNIT EIGHT: BUSINESS ORGANIZATIONS

B10. A partnership for a definite term cannot be dissolved before the

expiration of the term.

A11. A general partner is personally liable for partnership debts if its as-

sets are insufficient to pay its creditors.

B11. In winding up a partnership, partners can create new obligations on

behalf of the partnership.

A12. In winding up a general partnership, creditors are paid before

partners receive their capital contributions.

B12. In winding up a general partnership, partners receive distributions of

profits before non-partner creditors are paid.

A13. In a limited liability partnership, a partner can be exempt from

personal liability for partnership obligations.

B13. A limited liability partnership must be formed in compliance with

state law.

CHAPTER 36: PARTNERSHIPS AND LIMITED LIABILITY PARTNERSHIPS

119

A14. With a few exceptions, all of the rules that govern partnerships apply

to limited liability partnerships.

B14. In a family limited liability partnership, only persons related to each

other may be partners.

A15. A limited liability partnership can be formed in virtually any state.

B15. The maximum amount of money at risk by a limited partner is the

amount of his or her investment in the limited partnership.

A16. In a limited partnership, the liability of a limited partner is limited to

the amount of capital he or she has invested in the partnership.

B16. In a limited partnership, the liability of a general partner is limited to

the amount of capital he or she has invested in the partnership.

A17. Only a limited partnership¡¯s limited partners have a fiduciary

obligation to the other partners.

B17. A limited partner who participates in the management of the

partnership may be personally liable to the firm¡¯s creditors.

120

TEST BANK A¡ªUNIT EIGHT: BUSINESS ORGANIZATIONS

A18. A limited partner who gives a general partner advice on matters relating to the management of the partnership cannot be liable as a general partner.

B18. The death of a limited partner dissolves a limited partnership.

A19. A general partner has the power to dissociate from a limited

partnership regardless of what the partnership agreement specifies.

B19. In winding up a limited partnership, non-partner creditors are paid

before the partners receive their capital contributions.

A20. In a limited liability limited partnership, the liability of a general partner is limited to the amount of capital he or she has invested in the partnership.

B20. In a limited liability limited partnership, the liability of a general part-

ner is the same as the liability of a limited partner.

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121

MULTIPLE CHOICE QUESTIONS

A1. Guy and Hanna do business as G-H Associates. If G-H is a

partnership, it is governed by the Uniform Partnership Act

a.

in the absence of an express agreement.

b.

in the absence of an implied agreement.

c.

only in the presence of an express agreement.

d.

under all circumstances.

B1. Denise and Elke do business as Final Curtain Decorators. In most states, for purposes of holding title to property, this partnership would be treated as

a.

an aggregate of the individual partners.

b.

a natural person.

c.

an entity.

d.

a non-existent party.

A2. Noah and Orin do business as Personnel Partners. In most states, for purposes of suing and being sued, Personnel Partners would be treated as

a.

an aggregate of the individual partners.

b.

a natural person.

c.

an entity.

d.

a non-existent party.

B2. Ben, who runs a livestock breeding business, owes the Circle C Ranch $40,000. Ben agrees to pay the Circle C a percentage of his profits each month until the debt is paid. Because of this agreement, the Circle C is

a.

Ben¡¯s creditor and partner.

b.

Ben¡¯s creditor only.

122

TEST BANK A¡ªUNIT EIGHT: BUSINESS ORGANIZATIONS

c.

Ben¡¯s partner only.

d.

neither Ben¡¯s creditor nor his partner.

Fact Pattern 36-1A (Questions A3¨CA4 apply)

Dean starts up E-Sites, an Internet service, and leases office space in a building owned by Fred. The lease requires Dean to pay Fred a base rental of $250, plus 10 percent of E-Sites¡¯ profits, each month. The term is two years. Dean hires Gina to work at E-Sites¡¯ tech support desk at an hourly wage of $9.00, plus a commission of 10 percent of the profits. The term is also two years.

A3. Refer to Fact Pattern 36-1A. Dean and Fred are

a.

not partners, because Fred does not have an ownership

interest or management rights in E-Sites.

b.

not partners, because the lease includes a ¡°base rental.¡±

c.

not partners, because the rent includes only 10 percent of the

profits.

d.

partners in a partnership for two years.

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123

B3. Bo and Clancy decide to do business as Marketing & Promotion Services. To be a partnership, this association can result from an agreement that is

a.

express, but not from an agreement that is implied.

b.

implied, but not from an agreement that is express.

c.

oral, written, or implied by conduct.

d.

written, but not from an agreement that is oral or implied.

Fact Pattern 36-1A (Questions A3¨CA4 apply)

Dean starts up E-Sites, an Internet service, and leases office space in a building owned by Fred. The lease requires Dean to pay Fred a base rental of $250, plus 10 percent of E-Sites¡¯ profits, each month. The term is two years. Dean hires Gina to work at E-Sites¡¯ tech support desk at an hourly wage of $9.00, plus a commission of 10 percent of the profits. The term is also two years.

A4. Refer to Fact Pattern 36-1A. Dean and Gina are

a.

not partners, because Gina does not have an ownership

interest or management rights in E-Sites.

b.

not partners, because the pay includes an hourly wage.

c.

not partners, because the pay includes only 10 percent of the

profits.

d.

partners in a partnership for two years.

B4. Grady and Hedy do business as Island Tours. For federal income tax

purposes, Island Tours would be treated as

a.

an aggregate of the individual partners.

b.

a natural person.

c.

an entity.

d.

a non-existent party.

TEST BANK A¡ªUNIT EIGHT: BUSINESS ORGANIZATIONS

A5. Sabin and Tyler agree while talking on the phone to form a partner-

ship. Their partnership agreement is legally binding

a.

only if a third person knows of the agreement.

b.

only if the agreement is reduced to writing.

c.

only if the parties exchange valid consideration.

d.

without more.

B5. Pat and Quint sign a five-year partnership agreement to do business as ¡°Pat¡¯s Landscaping Service.¡± At the end of the fifth year, they decide to continue without specifying a new term. This partnership is terminable

a.

at any time by either partner.

b.

only after an additional five-year term.

c.

only if Pat dissociates from the firm.

d.

only if Quint dissociates from the firm.

A6. Rona and Stiv do business as Treasure Island Traders. In acting on the firm¡¯s behalf in a deal with Unlimited Potential, Inc., Rona makes an honest error in overestimating the profit. To her firm, Rona is

a.

liable for breach of the duty of care.

b.

liable for breach of the duty of economic sense.

c.

liable for breach of the duty of loyalty.

d.

not liable.

B6. Cody is a partner in Delta Accounting Service. Cody can inspect

a.

all of Delta¡¯s books and records.

b.

Delta¡¯s books and records only as the firm¡¯s management

permits.

c.

Delta¡¯s books and records only for a reasonable purpose.

d.

Delta¡¯s books and records relating to Cody¡¯s capital

contribution only.

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125

A7. Mabel and Nicol do business as One World Realty. In acting on the firm¡¯s behalf in a deal with Property Acquisition Company, Mabel fails to account for the profit. To her firm, Mabel is

a.

liable for breach of the duty of care.

b.

liable for breach of the duty of economic sense.

c.

liable for breach of the duty of loyalty.

d.

not liable.

B7. Dave and Eiger are partners in First-Place Athletic Supplies, which sells sports equipment. Dave manages the business. Unless the partnership agreement states otherwise, Dave is

a.

entitled to compensation in proportion to its effect on the

business.

b.

entitled to compensation in proportion to the effort expended.

c.

entitled to compensation in proportion to the effort required.

d.

not entitled to compensation for his effort.

A8. Erte, a partner in Fluoride Dental Associates, applies for a loan with Great State Bank allegedly on Fluoride¡¯s behalf but without the authorization of the other partners. Great State knows that Erte is not authorized to take out the loan. Erte¡¯s default on the loan results in

a.

Erte and Fluoride¡¯s joint liability for the amount.

b.

Erte¡¯s sole liability for the amount.

c.

Fluoride¡¯s sole liability for the amount.

d.

neitherErte¡¯s nor Fluoride¡¯s liability.

126

TEST BANK A¡ªUNIT EIGHT: BUSINESS ORGANIZATIONS

B8. Trina and Uri do business as Value Gems. In acting on the firm¡¯s behalf in a deal with World Diamond Exchange, Trina recklessly exceeds what Value Gems can afford to pay, causing damage to the firm. Trina is

a.

liable for breach of the duty of care.

b.

liable for breach of the duty of economic sense.

c.

liable for breach of the duty of loyalty.

d.

not liable.

Fact Pattern 36-2A (Questions A9¨CA10 apply)

Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals

firm.

A9. Refer to Fact Pattern 36-2A. Hal signs a contract with Lycra Chips, a retail component supplier, allegedly on Kappa¡¯s behalf. The contract is binding on

a.

Hal, Ira, Jill, and Kappa.

b.

Hal only.

c.

Kappa only.

d.

no one.

B9. Tundi is a partner in YooHoo! Amusement, a new partnership. A

YooHoo! debt comes due. Tundi is

a.

not liable for the debt.

b.

only liable for the debt up to the amount of his capital

contribution.

c.

personally liable only to the extent the other partners do not

pay.

d.

personally liable to the full extent of the debt.

Fact Pattern 36-2A (Questions A9¨CA10 apply)

CHAPTER 36: PARTNERSHIPS AND LIMITED LIABILITY PARTNERSHIPS

127

Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals

firm.

A10. Refer to Fact Pattern 36-2A. Ira dissociates from Kappa. Jill signs a contract with Micro Drives, a wholesale component supplier, allegedly on Kappa¡¯s behalf. Micro knows of Ira¡¯s dissociation. The contract is binding on

a.

Hal, Jill, and Kappa only.

b.

Jill only.

c.

Kappa only.

d.

no one.

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