BUL3310 Unit 13

The AMJ Partnership has 3 partners: Amy, who made a 60,000 capital contribution; May, who made a 20,000 capital contribution; and June, whose capital contribution was 10,000. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed? 60,000 to Amy; 20,000 to May; 10,00 to June 30,000 each to Amy, May and June 45,000 to Amy; 30,000 to May; 15,000 to June The partners will have to determine the distribution by a 23 partnership vote.

30,000 each to Amy, May and June

Which of the following is NOT one of the recognized disadvantages of doing business as a corporation? A corporation must comply with a great number of state and federal regulations. Corporate profits are subject to double taxation. A corporation must qualify to do business in each state in which it engages in business activities. A corporation can be in existence for a maximum of 99 years.

A corporation can be in existence for a maximum of 99 years.

Which of the following is not required to create a partnership? A written agreement between the parties. Two or more persons An understanding to share profits and losses A common interest and intent to conduct business activities together.

A written agreement between the parties.

Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership As rent For wages As an annuity to the spouse of a deceased partner All of the above

All of the above

Which of the following is NOT a recognized advantage of doing business as a corporation? Investors have extremely limited liability for the debts of the corporation. A corporation can have perpetual existence. Usury laws do not apply to corporations. All of the above are advantages of doing business in corporate form.

All of the above are advantages of doing business in corporate form.

The formal document that represents the agreement of the parties to form a partnership is the ___________. Partnership charter Partnership certificate Articles of partnership Uniform Act of Partnership

Articles of partnership

Any change in the identity of the partners, whether through death, withdrawal, or the adding of a new partner, results in the ________________of the old partnership. Termination Winding up Dissolution Disengagement

Dissolution

Frank is in the business of selling imported pottery. To induce a new wholesaler to sell him goods on credit, Frank and his brother Ed told the wholesaler that Ed was a partner in the business. In fact, Ed had no partnership interest and Frank was a sole proprietor. Ed now has liability to the wholesaler based on The complicity theory Vicarious liability Estoppel Respondeat superior

Estoppel

A business organized as a proprietorship may have up to, but not more than, thirty-five owners. True False

False

A doctor who practices as part of a professional association cannot be sued for malpractice. True False

False

A joint venture cannot sue or be sued. True False

False

A limited partnership has to have at least two general partners and at least one limited partner True False

False

A partner's capital contribution may consist in business experience or service to the firm. True False

False

A partnership is a taxable entity. True False

False

Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business. True False

False

Debbie, the manager of a large furniture store, receives a bonus each year equal to 2% of the business' net profits. Under RUPA, this is conclusive evidence that Debbie has a partnership interest in the business. True False

False

In a closely held corporation, the shareholders will be personally liable for torts committed by employees of the corporation if committed while carrying out their employee duties. True False

False

In a partnership for a term of years, each partner has both the power and the right to withdraw from the partnership at any time. True False

False

The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC. True False

False

The partnership must pay interest each year on the capital contributions of the partners. True False

False

Subchapter S corporations may have a maximum of 100 shareholders. True False

False?

In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP? General partners Joint partners Limited partners Silent partners

General partners

In a limited partnership, the _________partner has unlimited personal liability for the debts of the partnership; the ____________partner is liable only to the extent of his or her capital contribution. Limited-----------------general General----------------limited Senior------------------limited General----------------junior

General----------------limited

A person who becomes a partner by estoppel Has the right to share in the profits earned by the partnership Has the right to share in the day to day management of the partnership Has the right to veto any decision where unanimous consent is required Has no partnership rights, only liability to creditors who believed he was a partner.

Has no partnership rights, only liability to creditors who believed he was a partner.

Which of the following issues do not require a unanimous vote of the partners? Admission of a new partner Confession of a judgment against the partnership Disposal of the good will of the business Hiring an office manager for 40 hours a week.

Hiring an office manager for 40 hours a week.

Which of the following statements about a joint venture is true? It can be the plaintiff in a lawsuit without involving the individuals who form the joint venture. It can be the defendant in a lawsuit without subjecting the individuals who form the joint venture to liability. It is limited by statute to thirty-five members. Individuals form it to conduct a single, or very limited, business activity.

Individuals form it to conduct a single, or very limited, business activity.

Which of the following is an informal association of two or more persons who agree to engage as co-owners in a single business transaction? Joint venture General partnership Trading group Limited partnership

Joint venture

States give corporations many rights, among them the right to sue and the right to own property in the corporation's name. What do such legal rights collectively constitute for a corporation? Goodwill Legal capacity Business identity Competitive advantage

Legal capacity

Partnership agreements often fund the purchase of a deceased partners' partnership interests with Life insurance policies Distributions of retained earnings Levies on partnership interests Partner advances

Life insurance policies

Which of the following statements about the limited partner in a limited partnership is false? Limited partners may participate fully in the management of the partnership. There must be at least one limited partner. Limited partners must approve any changes to the partnership agreement. Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.

Limited partners may participate fully in the management of the partnership.

The purpose of a buy and sell agreement is to Create a trading partnership Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest. Determine the compensation for partners who manage the business. Set guide lines for selling the goodwill of the business.

NOT Create a trading partnership

Partners hold title to partnership property as Joint tenants Tenants in common Tenants in partnership Tenants by the entireties

NOT Joint tenants

Megan has joined Alliance Partners, making a 50,000 capital contribution. Alliance has been in business for 10 years and Megan is worried about her liability for pre-existing debts. Which statement best describes her liability for the debts Alliance had when she joined the partnership? Megan has unlimited personal liability and her entire capital contribution may be used to satisfy the debts. Megan has unlimited personal liability, but her capital contribution cannot be used because it is new money. Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them. Megan has no personal liability for the debts and her capital contribution cannot be used to satisfy old debts.

NOT Megan has unlimited personal liability and her entire capital contribution may be used to satisfy the debts.

A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership. Professional Entrepreneurial Trading Non-trading

NOT Professional

Which of the following abbreviations would NOT be used by a professional corporation as a required part of its name? S.C. PC LLC Inc.

NOT S.C. NOT PC

A partnership need not give public notice of its dissolution if the dissolution was caused by The bankruptcy of a partner The death of a partner The wrongful withdrawal of a partner The expiration of the partnership's term of years.

NOT The expiration of the partnership's term of years.

Peter, Paul and John, who were licensed pharmacists, formed a partnership to purchase and run a small drugstore chain. Each held a 13 interest in the partnership. When Paul died his wife Ellen began receiving annuity payments equal to 13 of the partnership's net profits. The payments were to last for 3 years. Ellen is also a licensed pharmacist and perfectly capable of performing all the duties that Peter, Paul and John performed. She claims that under partnership law both her right to receive a share of net profits and her expertise in the field are prima facie evidence that she is a partner in the firm. Is Ellen correct? No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership. No, only management rights are prima facie evidence of a partnership Yes, sharing in net profits for whatever reason is prima facie evidence of a partnership. Yes, sharing in net profits and having the same business qualifications as the other partners together create prima facie evidence of a partnership.

No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership.

Which of the following is not an advantage of a general partnership? Partners have limited liability for the debts of the partnership The costs to form a partnership are minimal. All partners have equal management rights. All of the above are advantages of a general partnership.

Partners have limited liability for the debts of the partnership

What is the provision of the tax rule that makes income taxable only for the individuals who receive it, and not for the business entity that produces it? Double taxation Pass through Dividend retention Income averaging

Pass through

Corporations are said to have a burden of "double tax" because Profits are taxed at the corporate level as income and again at the shareholder level as dividends. Corporations are taxed at both the state and federal level. Corporations must file federal tax returns twice a year because their taxing period runs for only 6 months. Corporations compute their federal tax liability by multiplying their state tax liability by 2.

Profits are taxed at the corporate level as income and again at the shareholder level as dividends.

A partner who participates in the management of the partnership, but whose existence is not known to the public is a _____________ partner. Silent Dormant Secret Senior

Secret

Which of the following statements about proprietorships is true? Proprietorships are taxable entities apart from the owners. A business can have up to thirty-five owners and still be a proprietorship. A proprietorship cannot generate more than 10 million in proceeds per tax year. The owner of a proprietorship is personally liable for all the debts of the proprietorship.

The owner of a proprietorship is personally liable for all the debts of the proprietorship.

Which of the following is not a right of a partner? The right to participate in the management of the business. The right to draw yearly interest on his or her capital contribution The right to inspect the partnership books and records. The right to sue for an accounting if another partner has taken a secret profit.

The right to draw yearly interest on his or her capital contribution

A partnership whose primary business purpose is the buying and selling of goods is a ________partnership. Professional Entrepreneurial Trading Non-trading

Trading

A corporation must qualify to do business in each state where it conducts business activities. True False

True

A dormant partner is one who does not participate in the management of the business and whose identity is not known to third parties. True False

True

A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership. True False

True

A person may become a partner without making a capital contribution. True False

True

A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income. True False

True

If the partnership agreement does not state how long the partnership is to last, a partnership- at- will is created. True False

True

Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss. True False

True

Legal capacity is the ability of an organization to sue and to own property. True False

True

Members of professional associations and professional corporations are eligible under the Tax Code to participate in pension and profit-sharing plans. True False

True

One partner has the ability to veto the admission of a new partner into the business. True False

True

Partners are agents of the partnership and of the other partners individually. True False

True

Partnerships typically buy life insurance policies on each partner in order to fund the required purchase of the partner's interest in the partnership when the partner dies. True False

True

Shareholders of corporations pay taxes on the dividends distributed to them by the corporation. True False

True

Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships. True False

True

Usury laws do not apply to corporations when they borrow money. True False

True

In a Limited Liability Company, the losses and profits pass through to the shareholders. True False

True?

By statute, a limited partnership must have a minimum of ___________general partners. one two four five

not two One?