Chapter 17 BLAW

information return

a tax return submitted by a partnership that only reports the income earned by the business

joint and several liability

in partnership law, a doctrine under which a plaintiff may sue, and collect a judgment from, one or more the partners separately or all the partners togetehr

Julie, Manuel, and Emilio are three dentists who formed a limited liability partnership (LLP) for their dental practice. Emilio accidentally removes the wrong tooth of a patient. The patient sues the partnership for negligence and wants to hold all three doctors personally liable. A court will most likely find: a. Emilio personally liable for negligence, but not Julie and Manuel. b. Emilio and Julie personally liable for negligence, but not Manuel. c. Emilio and Manuel personally liable for negligence, but not Julie. d. all partners personally liable for negligence.

a

The sharing of both profits and losses creates a legal inference that a partnership exists. a. True b. False

a

partnership by estoppel

a judicially created partnership that may, at the courts discretion, by imposed for purpose of fairness. the court can prevent those who present themselves as partners from escaping liability if a third person relies on an alleged partnership in good faith and is harmed as a result

Three Essential Elements to Determine Whether a Partnership Exists:

a sharing of profits or losses a joint ownership of the business an equal right to be involved in the management of the business

articles of partnership

a written agreement that sets forth each partner's rights and obligations with respect to the partnership

. Partners can agree ahead of time on how the assets will be valued and divided if the partnership dissolves, using, for example, buy-sell agreements. a. True b. False

a

Abigail, Bart, and Steven agree to do business as a partnership. Their obligation to one another is most similar to what kind of relationship? a. Agency b. Tort c. Contract d. Corporate

a

After a partner's dissociation, his or her interest in the partnership must be purchased. a. True b. False

a

Any event that makes it unlawful for the partnership to continue its business will result in dissolution. a. True b. False

a

Each partner must exercise good faith during the dissolution of a partnership. a. True b. False

a

Henry and Ryan each invest $10,000 in a limited partnership as limited partners, so each has a 50% interest. Tracey sues the limited partnership and obtains a $100,000 judgment. Henry's liability is: a. $10,000. b. unlimited. c. $100,000. d. $50,000.

a

If a partner withdraws prematurely from a 'partnership for a term,' that partner has breached the partnership agreement and may be liable for any resulting losses. a. True b. False

a

If the partnership agreement does not indicate how the profits will be shared, the Uniform Partnership Act provides that profits will be shared equally. a. True b. False

a

In a limited partnership, the liability of a limited partner is a. limited to the capital contribution b. unlimited c. limited to the total capital of the LP d. $100,000

a

In the distribution of assets of a limited partnership, which group has the first priority? a. outside creditors and partner creditors b. partners and former partners entitled to distributions of partnership assets c. unless otherwise agreed, partners, as they are entitled to return of capital contributions and distribution of profit

a

winding up

the second of two stages involved in the termination of a partnership. once the firm is dissolved, it continues to exist legally until the process of winding up all business affairs is complete

What governs the operation of a partnership when there is no express partnership agreement?

the uniform partnership act

The limited liability partnership (LLP) is a hybrid form of business designed mostly for professionals who normally do business as partners in a partnership. a. True b. False

a

________ of the states have enacted limited liability partnership (LLP) statutes.

almost all

Under common law, a partnership was treated only as

an aggregate of its members

partnership

an agreement by two or more persons to carry on, as co-owners, a business for profit

buy-sell agreement

an express agreement made at the time of the partnership formation for one or more of the partners to buy out the other or others should the situation warrant

pass-through entity

any entity that does not have its income at the level of that entity; examples are partnerships, s corporations, and limited liability companies

After dissolution, the partnership immediately ceases to continue. a. True b. False

b

All states provide that when more than one partner in an LLP is negligent, each partner is jointly and severally liable for the entire result. a. True b. False

b

Although each partner must continue to exercise good faith, partners no longer have fiduciary duties to one another during the winding up process and the distribution of assets. a. True b. False

b

Eddie and Eric enter into a partnership agreement to sell gourmet dog biscuits. If they do not specify how long the general partnership will last, the partnership will end: a. whenever both partners agree to end it. b. whenever either partner wants to end it. c. in one year plus one day. d. in twelve months.

b

Eduardo and Larson enter into a partnership agreement to sell gourmet dog biscuits, but they do not specify how long it will last. Consequently, it will end: a. in twelve months b. whenever either partner wants to end it c. in one year, plus one day d. whenever both partners agree to end it

b

Gary, Harold, Daniel, and Brian form a real estate partnership in 2013. In 2015, Brian dissociates himself from the partnership. After a partner's dissociation, under the Uniform Partnership Act the partnership: a. can freely choose whether to purchase Brian's partnership interest and how much value it will pay. b. must purchase his or her partnership interest based upon the buyout price. c. can freely choose whether to purchase Brian's partnership interest, and if it does not purchase Brian's interest, Brian will remain a partner. d. dissolves and distributes all assets.

b

If a third party knows that a partner had no authority to commit the partnership, the partner's actions with the third party still bind the partnership and its partners. a. True b. False

b

In all cases, joint ownership of property creates a partnership. a. True b. False

b

In order to form a valid limited partnership (LP), the partnership must a. file articles of organization b. file a certificate of limited partnership c. file an amended partnership agreement

b

John is a partner in a large oil-and-gas partnership with forty partners. At the end of the fiscal year, John refuses to give an accounting of profits earned from the use of partnership property as required by the partnership agreement. This action may be treated as: a. wrongful dissociation from the partnership, but John will only be held liable for nominal damages because he is a valid partner and the accounting was requested. b. wrongful dissociation from the partnership, and John will be held liable for any damages. c. a negligent act by John. d. a rightful dissociation from the partnership, and John may insulate himself from liability.

b

LLPs must be formed and operated in compliance with federal law. a. True b. False

b

One basic difference between partnership and agency law is that: a. in a partnership, partners are not deemed to be agents of the other partners b. each partner has an ownership interest in the firm c. each partner does not have an ownership interest in the firm

b

The formation of both a traditional partnership and a limited partnership requires a public and formal proceeding that must follow statutory requirements. a. True b. False

b

Violet, William, and Xavier are partners in a partnership that sells medical devices. Violet and William each contributed $100,000 to the partnership. Xavier contributed $300,000 to the partnership. The partners vote on whether or not to purchase a new $100 machine. Violet and William support the purchase. Xavier opposes the purchase. Unless the partnership agreement states otherwise, the partnership will: a. not purchase the machine, because partnership decisions in management matters always require a unanimous vote. b. purchase the machine, because each partner has one vote in management matters. c. purchase the machine, because the support of one partner is required for the partnership to commit itself to a given action. d. not purchase the machine, because Xavier's interest in the partnership exceeds the interest of Violet and William combined.

b

What type of liability occurs when a third party has the option of suing all the partners together or one or more of the partners separately? a. joint liability b. joint and several liability c. several liability d. imputed liability

b

. What happens if a limited partner in a limited partnership participates in management? a. nothing b. the limited partner reduces his or her liability c. the limited partner becomes just as liable as a general partner to any creditor d. the limited partner takes over the liability of all general partners

c

All but one of the following is included in partnership winding up activities: a. collecting partnership assets b. preserving partnership assets c. signing new contracts for the partnership d. paying debts e. accounting to each partner for the value of his or her interest

c

Chase, Marla, and Enrique have been operating a chain of self-service laundries as a general partnership for many years. Marla declares bankruptcy. In most states, Marla's bankruptcy will: a. do nothing to the partnership b. dissolve the partnership automatically c. cause Marla's dissociation from the partnership d. cause the partnership to declare bankruptcy

c

Doug, Frank and Sarah want to form an entity for their new accounting firm. They want to ensure that each avoids personal liability for the malpractice of the other partners, so they should form a(n): a. joint venture. b. limited partnership. c. limited liability partnership. d. general partnership.

c

How is the buyout price of a dissociated partner calculated? a. the remaining partners decide among themselves b. state law determines the total amount c. the price is based on the amount that would have been distributed to the partner if the partnership had been wound up on the date of dissociation

c

Jake, Yolanda, William, Liam, and Matthew are members of a highly successful consulting partnership. Ella wants to join the partnership and bring her management skills. Jake, Yolanda, William, and Liam want Ella to be partner. Matthew does not trust Ella and does not want Ella to join the partnership. Under the Uniform Partnership Act, Ella: a. will not join the partnership, because she has not properly certified her management skills. b. will join the partnership, because at least one partner is willing add Ella as a partner. c. will not join the partnership, because not all partners agree. d. will join the partnership, because a majority of partners consent.

c

The two categories of enterprises for which a limited liability partnership (LLP) is especially attractive are: a. farmers and manufacturers b. manufacturers and computer hardware businesses c. professional services and family businesses d. professional services and unions

c

What happens when, after winding up, the partnerships liabilities are greater than its assets? a. nothing, because unpaid creditors can no longer pursue their legal claims b. the partner who made the largest investment is liable for all remaining unpaid claims c. the partners bear the losses in the same proportion in which they shared the profits d. the partners bear the losses in equal proportion

c

William, Irene, Jason, Barbara, and Immunographics, Inc. form a partnership for the purposes of developing designs for medical products. This partnership is: a. invalid because corporations cannot be a partner in a partnership. b. invalid because a partnership cannot have more than three members. c. valid because corporations can be a partner in a partnership. d. valid because partnerships generally require at least one corporation as a partner.

c

hat is the major advantage of an LLP? a. it increases the liability of the partners b. it allows the partnership to be taxed as a corporation c. it limits the personal liability of partners to only their own wrongful acts

c

Which of the following fiduciary duties does a partner owe the partnership? Choose two. a. proximate cause b. assumption of a management role c. loyalty d. reinvestment of profits e. care

care & loyalty

Chance, Justina, and Rich have been operating a chain of self-service laundries as a general partnership for three years. At the beginning of the fourth year, Justina declares bankruptcy. Under the version of the Uniform Partnership Act (UPA) that is in effect in most states, Justina's bankruptcy will: a. do nothing to the partnership; it will continue as before b. dissolve the partnership automatically c. cause the partnership to declare bankruptcy d. cause Justina's dissociation from the partnership

d

Dissolution of a partnership generally can be brought about by all of the following except: a. acts of the partners b. by operation of law c. judicial decree d. insistence of a competitor

d

Generally speaking, a limited partnership will be dissolved if a. a limited partner leaves b. the partnership business relocates c. a limited partner gets married d. a court issues the appropriate decree

d

Jack and Jill are equal partners in a bottled water partnership. The partnership is specifically limited to an eighteen-month term in order to give Jack and Jill time to fully develop their business. After twelve months, however, Jack withdraws from the partnership to start a new business elsewhere. Jack's withdrawal: a. is permissible, because a partner in this case can withdraw from the partnership at any time. b. is not permissible, because a partner cannot withdraw from the partnership when there are only two partners. c. is permissible, because Jack and Jill are equal partners, so neither can penalize the other for leaving. d. is not permissible and constitutes a breach of the partnership agreement.

d

Katrina and Shannon form a general partnership to operate a gourmet kitchen business. In most states, if they do not specify their respective management rights, then: a. one partner manages the business and the other provides the capital. b. one partner has superior management rights. c. the partner who invested more capital has a greater voice in management. d. both partners have equal management rights.

d

Michael, Sarah, and Mindy are partners in a limited partnership that buys commercial real estate. Michael and Sarah are limited partners, and Mindy is a general partner. Business is booming, so Mindy asks Sarah for help. Sarah offers to buy land from LandInvest Co., and holds herself out as a representative of the limited partnership. Sarah drafts the contracts, participates in the negotiation, and completes the sale on her own. Sarah also takes on bookkeeping and related tasks to free up Mindy to locate new sellers. If a dispute arises with LandInvest Co. related to the contract, and LandInvest Co. sues the limited partnership, it is possible that: a. All of the limited partners will held personally liable. b. Mindy will not be personally liable as a general partner. c. Sarah will not be held personally liable because she is a limited partner. d. Sarah will be held personally liable even though she is a limited partner and Mindy will also be held liable as a general partner.

d

Smith, Jones, and Howe are lawyers who do not have a partnership agreement, but share office space, jointly pay a receptionist, assist one another from time to time, and print office stationery with the letterhead of "Law Offices of Smith, Jones, and Howe." A client of Smith sues the three lawyers for malpractice. A court may find that: a. Smith, Jones, and Howe are not partners because attorneys cannot form partnerships. b. Smith, Jones, and Howe are not partners because they have no partnership agreement. c. a partnership by extension exists between Smith, Jones, and Howe. d. a partnership by estoppel exists between Smith, Jones, and Howe.

d

When one partner's relationship with a partnership comes to an end but the partnership continues to do business, it is known as

dissociation

Generally, a partner obtains compensation from the partnership by

distribution of profits according to the partner's share in the business

charging order

in partnership law, an order granted by a court to a judgement creditor that entitles the creditor to attach profits or assets for a partner on dissolution of the partnership

A partnership's assets are distributed according to the following priorities: _______ then _______

payment of debts, including those owed to partner and nonpartner creditors; return of capital contributions and distribution of profits to partners

joint liability

shared liability. in partnership law, partners incur joint liability for partnership obligations and debts

dissolution

the formal disbanding of a partnership. it can take place by 1. acts of partners; 2. death of a partner; 3 expiation of a time period stated in a partnership agreement. 4 judicial decree

The bankruptcy, retirement, death, or mental incompetence of a general partner will cause the dissociation of that partner and the dissolution of the limited partnership

unless the other members agree to continue the firm