Chapter 14 - Small Business, General Partnerships, & Limited Partnerships

________ is said to have occurred if a certificate of limited partnership was not properly filed. A) Defective formation B) Illegitimate partnership C) Void partnership D) Voidable association

A) Defective formation

Why does a sole proprietorship not pay taxes at the business level? A) It does not have a separate legal existence. B) It is a small business that is exempted from taxation. C) It is a non-profit organization. D) It is generally an institution with no business dealings

A) It does not have a separate legal existence.

Which of the following information should a certificate of limited partnership contain? A) the latest date of dissolution of the partnership B) a clause to not accept new general partners C) the name of the party who becomes a general partner in the event of transfer D) the scope of potential business opportunities and related investment

A) the latest date of dissolution of the partnership

Which of the following types of liability does a general partner of a limited partnership have for the debts and obligations of the limited partnership? A) unlimited personal liability B) limited capital liability C) liability of termination as partner D) limited personal liability

A) unlimited personal liability

_______ are the most common form of business organization in the United States. A) General partnerships B) Sole proprietorships C) Limited liability companies D) Limited partnerships

B) Sole proprietorships

A limited partnership has two types of partners, ________. A) general partners and sole proprietors B) general partners and limited partners C) ordinary partners and liable partners D) special partners and sole proprietors

B) general partners and limited partners

Which of the following is true of the liability of an incoming partner? A) An incoming partner is liable for the antecedent debts of the partnership. B) An incoming partner has joint and several liability with existing partners for the antecedent debts of the partnership. C) An incoming partner is liable for the existing debts of the partnership only to the extent of his or her capital contribution. D) An incoming partner is not liable for the future debts of the partnership.

C) An incoming partner is liable for the existing debts of the partnership only to the extent of his or her capital contribution.

Which of the following is true of a limited partnership? A) Other limited partnerships cannot become limited partners in an existing limited partnership. B) A limited partner is personally liable for the debts of the partnership. C) Corporations are allowed to become partners in a limited partnership. D) A limited partnership can have only one general partner but multiple limited partners.

C) Corporations are allowed to become partners in a limited partnership.

Which of the following is a major form of conducting business? A) an institution B) a charity C) a corporation D) a trust

C) a corporation

Which of the following partners in a limited partnership invests capital, manages the business, and is personally liable for partnership debts? A) specific partners B) limited partners C) general partners D) sole proprietors

C) general partners

An association of two or more persons to carry on as co-owners of a business for profit is known as a ________. A) limited partnership B) sole proprietorship C) corporation D) general partnership

D) general partnership

According to the Statute of Frauds, a general partnership that exists for more than ________must have a written partnership agreement. A) three months B) six months C) nine months D) one year

D) one year

The ________ Act is a uniform act that regulates the formation, operation, and termination of limited partnerships.

revised uniform limited partnership

Limited partnerships are also known as ________.

special partnerships

List the advantages and disadvantages of a sole proprietorship.

1. Forming a sole proprietorship is easy and does not cost a lot. 2. The owner has the right to make all management decisions concerning the business, including those involving hiring and firing employees. 3. The sole proprietor owns all of the business and has the right to receive all of the business's profits. 4. A sole proprietorship can be easily transferred or sold if and when the owner desires to do so; no other approval is necessary.

An organization or venture must have a ________ motive in order to qualify as a partnership. A) large-scale expansion B) noncommercial C) profit D) target market

C) profit

Who among the following gets first priority in the distribution of assets upon the dissolution of a partnership? A) investors B) limited partners C) general partners D) creditors

D) creditors

A(n) ________ is a document that is filed with the secretary of state upon the dissolution of a limited partnership

certificate of cancellation

A(n) ________ is a document that two or more persons must execute and sign that makes a limited partnership legal and binding.

certificate of limited partnership

A(n) ________ is a partnership created with no fixed duration.

partnership at will

The ________ is a rule which provides that upon the death of a general partner, the deceased partner's right in specific partnership property vests in the remaining partner or partners; it does not pass to his or her heirs or next of kin.

right to survivor-ship

The ________ Act is a model act that codifies general partnership law.

uniform partnership

Which of the following is true of a business operating under sole proprietorship? A) It is not considered a separate legal entity. B) It cannot be sold when the owner decides to do so. C) It requires governmental approval when being transferred. D) It has access to unrestricted capital by means of investments.

A) It is not considered a separate legal entity.

Which of the following is true of creating a sole proprietorship? A) No state government approval is required. B) A sole proprietorship is subject to double-taxation. C) No licenses are required to do business within a city or state. D) Special permission must be obtained to receive sole proprietorship status.

A) No state government approval is required.

________ establishes rules for the dissolution of a limited partnership. A) The RULPA B) The UPA C) The UCC D) Federal statutory law.

A) The RULPA

Which of the following best describes an entrepreneur? A) a person who forms and operates a business B) a person who invests in an existing business C) a person who lends capital to a new business D) a person who derives a profit from a new or an existing business

A) a person who forms and operates a business

According to priority, which of the following claims is satisfied first after dissolution? A) creditors B) creditor-partners C) capital contributions D) profits

A) creditors

Where a partnership agreement provides for the sharing of profits but is silent as to how losses are to be shared, ________. A) losses are shared in the same proportion as profits B) losses are shared in greater proportion than profits C) profits are shared in greater proportion than losses D) losses are absorbed by the partnership entity rather than borne by the individual partners

A) losses are shared in the same proportion as profits

Which of the following is an accurate statement regarding dissolution of a partnership? A) A general partnership may be dissolved, while a limited partnership may not. B) Just like a general partnership, a limited partnership may be dissolved and its affairs wound up. C) Dissolution of a general partnership is governed by federal law, while dissolution of a limited partnership is governed by state law. D) Dissolution of a limited partnership is governed by federal law, while dissolution of a general partnership is governed by state law.

B) Just like a general partnership, a limited partnership may be dissolved and its affairs wound up.

Laura is an investor and a limited partner in a limited partnership. Two years after she becomes a limited partner, Laura believes that the general partners are not doing a very good job of managing the affairs of the limited partnership, and she accordingly participates in its management. While she was managing the business, a bank loans $1 million to the limited partnership, believing that Laura is a general partner. If the limited partnership defaults on the $1 million loan, which of the following will be true? A) Laura will not be held personally liable, as she is technically a limited partner. B) Laura will be treated as a general partner and will be held personally liable for the loan. C) Laura will be held liable for her proportionate share of the $1 million, depending on the total number of general and limited partners in the limited partnership. D) Laura's liability will be restricted to the value of her capital investment in the limited partnership.

B) Laura will be treated as a general partner and will be held personally liable for the loan.

Orlando opened a hot dog stand in Brooklyn, doing business as Orlando's Red Hots. Unfortunately, the venture has not generated a profit. Orlando borrowed $5,000 from the bank to open his business, and the short-term loan is now due. Orlando's friend Bob has suggested partnering with him at the beginning of next year. From which of the following sources can the bank currently recover its $5,000? A) Orlando's secondary lender B) Orlando's savings account C) Orlando's family D) Bob, Orlando's prospective business partner

B) Orlando's savings account

Which of the following is true of profits and losses in a general partnership? A) By law, it is presumed that the proportion of profits shared is equal to the general partner's initial investment. B) Unless otherwise agreed, losses are shared equally by all general partners. C) The general partner who proposed the idea of the business receives the greatest share of profits. D) The proportion of investment governs only the proportion of losses shared and not profits obtained.

B) Unless otherwise agreed, losses are shared equally by all general partners.

Which of the following must be in writing under the Statute of Frauds? A) a business that has more than one commercial venture B) a partnership that is authorized to deal in real estate C) a business that is authorized to lend money D) an enterprise that deals in health and medicine

B) a partnership that is authorized to deal in real estate

Jonathan Lopez wants to be his own boss and ventures into retailing fruit in the neighborhood after borrowing some money from his mother. While obtaining a license to carry out business in his city, Jonathan mentions the money he borrowed but forgets to specify what type of business undertaking his store will be. Under which of the following major forms of business is Jonathan's store listed by default? A) a general partnership B) a sole proprietorship C) a limited partnership D) a limited liability corporation

B) a sole proprietorship

Which of the following types of liability does a limited partner of a limited partnership have for the debts and obligations of the limited partnerships? A) unlimited personal liability B) liability restricted to the extent of his or her capital contribution C) liability of termination as partner D) unlimited organizational capital liability

B) liability restricted to the extent of his or her capital contribution

According to the Revised Uniform Limited Partnership Act (RULPA), what liability does a corporation have if it is a general partner in a limited partnership? A) unlimited personal liability B) liability restricted to the extent of its capital contribution C) liability of termination as partner D) unlimited organizational capital liability.

B) liability restricted to the extent of its capital contribution

Which of the following partners of a limited partnership invests capital but does not participate in management? A) specific partners B) limited partners C) general partners D) sole proprietors

B) limited partners

Which of the following is true of a general partnership? A) A business must generate a profit in order to qualify as a general partnership. B) The general partners need not be the co-owners of the business. C) A general partnership may be formed with little or no formality. D) Charity organizations and schools are usually formed as general partnerships

C) A general partnership may be formed with little or no formality.

Which of the following is true of tort liability of a general partnership? A) Only the partner who committed the tort is liable. B) Under the UPA, general partners have joint, but not several, liability for torts committed in the course and scope of the partnership. C) A partner can be sued even if he or she did not participate in the commission of the tort. D) If one of the partners in the partnership is released, the other partners are discharged of liability.

C) A partner can be sued even if he or she did not participate in the commission of the tort.

Which of the following is true in the creation of a general partnership? A) The business name must include the names of all partners. B) The business name cannot be a fictitious name. C) The name selected by the partnership cannot indicate that it is a corporation. D) The business cannot operate under a trade name

C) The name selected by the partnership cannot indicate that it is a corporation.

________ is a situation in which a partner withdraws from a partnership without having the right to do so at that time. A) Winding up B) Indemnification C) Wrongful dissolution D) Proliferation

C) Wrongful dissolution

On the dissolution and the commencement of the winding up of a limited partnership, a(n)________ must be filed by the limited partnership with the secretary of state of the state in which the limited partnership is organized. A) termination statement B) renunciation statement C) certificate of cancellation D) annulment

C) certificate of cancellation

According to the RULPA, which of the following categories is entitled to priority in the order of distribution of assets of a limited partnership during the winding-up phase? A) partners with respect to unpaid distributions B) partners with respect to capital contributions C) creditors of the limited partnership D) charitable organizations registered with the secretary of state in the state where the limited partnership was formed

C) creditors of the limited partnership

The earnings and losses from a sole proprietorship are reported on ________. A) the federal income tax filing document for sole proprietorships B) the sole proprietorship business license that is renewed each year C) the sole proprietor's personal income tax filing D) the state income tax filing document for sole proprietorships

C) the sole proprietor's personal income tax filing

Justin and Michael form a limited partnership and start a car dealership. Justin is the general partner and Michael is the limited partner. Seven months after the commencement of the business, Pedro makes an investment and wishes to become a general partner. A week later, Michael's mother wishes to join the partnership as a limited partner. Which of the following is true in this scenario? A) Pedro cannot be admitted as a general partner to the partnership after the business has commenced. B) Pedro cannot be admitted as a general partner to the partnership as a limited partnership can only have one general partner. C) Michael's mother cannot be admitted as a limited partner to the partnership as a limited partnership can only have one limited partner. D) Both Pedro and Michael's mother can choose to be admitted as either general or limited partners to the partnership.

D) Both Pedro and Michael's mother can choose to be admitted as either general or limited partners to the partnership.

Which of the following is true of a sole proprietorship? A) A business operated under sole proprietorship cannot be transferred. B) Large businesses cannot be operated under sole proprietorship. C) A business operated under sole proprietorship must be owned by one or more people of the same family. D) Creditors can recover claims against the business from the sole proprietor's personal assets.

D) Creditors can recover claims against the business from the sole proprietor's personal assets.

Which of the following is true of the management of a general partnership? A) The number of votes a general partner has depends on the proportion of his or her capital investment. B) Partnership matters are decided by unanimous agreement only. C) Only a general partner who is also a member of the partnership's board of directors has the authority to participate in the management of the partnership. D) If the vote is tied, the action being voted on is considered to be defeated.

D) If the vote is tied, the action being voted on is considered to be defeated.

Which of the following is true of a limited partnership agreement? A) It must provide that all partnership transactions be approved by all partners. B) It does not contain information about dissolution of the partnership, since it is an agreement of formation. C) It must provide that general and limited partners have equal voting rights. D) It sets forth the terms and conditions regarding the termination of the partnership.

D) It sets forth the terms and conditions regarding the termination of the partnership.

Which of the following is true of general and limited partners in a limited partnership? A) Limited partners are exempt from annual capital investment and need only participate in management functions. B) General partners are not personally liable for partnership debts. C) General partners are required to invest capital and refrain from managerial activities. D) Limited partners are not personally liable for partnership debts beyond their capital contributions.

D) Limited partners are not personally liable for partnership debts beyond their capital contributions.

Instead of suing the partnerships or other partners at law, general partners are given the right to bring a(n) ________ against other partners. A) claim for damages B) tort action C) call for action D) action for an accounting

D) action for an accounting

The change in the relationship of partners in a partnership caused by any partner ceasing to be associated in the carrying on of the business is known as ________. A) an action for an accounting B) indemnification C) winding up D) dissolution

D) dissolution

Under partnership law, ________ have the right to manage the affairs of the limited partnership. A) investors B) sole proprietors C) limited partners D) general partners

D) general partners

Which of the following governs a limited partnership, its internal affairs, and the liability of its limited partners? A) the federal government B) all states in which the business operates C) the articles of limited partnership D) the law of the state in which it is organized

D) the law of the state in which it is organized

Partners who erroneously but in good faith believe they have become limited partners can escape liability as general partners by ________. A) adding their surname to the name of the business establishment B) filing for a refund of his or her initial investment with interest C) bringing a lawsuit against all general and limited partners in the state court with appropriate jurisdiction over the limited partnership D) withdrawing from any future equity participation in the enterprise and causing a certificate showing this withdrawal to be filed

D) withdrawing from any future equity participation in the enterprise and causing a certificate showing this withdrawal to be filed

________ occurs when (1) a certificate of limited partnership is not properly filed, (2) there are errors in a certificate that is filed, or (3) some other statutory requirement for the creation of a limited partnership is not met.

defective formation

The designation for a business that is operating under a trade name is ________.

doing business as (D.B.A.)

A(n) ________ is a document that is filed with the state that designates a trade name of a business.

fictitious business name statement

An ordinary partnership is also known as a(n) ________.

general partnership

While claiming under ________ liability, a plaintiff must name the partnership and all of the partners as defendants in a lawsuit.

joint

A(n) ________ is a document that sets forth the rights and duties of general and limited partners.

limited partnership agreement

A(n) ________ is a partnership created for a fixed duration.

partnership for a term

General partners have ________ liability for the debts and obligations of the partnership.

unlimited

The sole proprietor has ________ liability.

unlimited personal