BUL3310 UNIT 10
May is one of three limited partners in a limited partnership. Each limited partner made a capital contribution of $50,000. Assume there is a judgment against the partnership for $300,000 and that both the partnership and the general partner are insolvent. What is the maximum amount that May will have to pay on the judgment? $50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that. $100,000: May will be liable for up to 1/3 of the judgment since there are three limited partners. $300,000: As a limited partner May has joint and several liability for the debts of the partnership so she could be personally liable for the full amount. 0: May is a limited partner so has no liability for the debts of the partnership under any circumstances.
$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.
Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership as/for: (select all the correct answers) As dividends to the participants For wages As rent As an annuity to the spouse of a deceased partner
-For wages -As rent -As an annuity to the spouse of a deceased partner
A partnership that fails to comply with a state's assumed name statute (select all the answers that are correct) Will be given a trade name by the attorney general Will default to a Subchapter S corporation. May exposed the partners to criminal liability Will not be able to use the courts of the state to sue its debtors
-May exposed the partners to criminal liability -Will not be able to use the courts of the state to sue its debtors
Which of the following would bring about the dissolution of the partnership? (select all the correct answers) The partnership files for bankruptcy. One of the partners dies. All of the partners agree to end the partnership The time the partnership is to last, as stated in the partnership agreement, has expired
-One of the partners dies. -All of the partners agree to end the partnership -The time the partnership is to last, as stated in the partnership agreement, has expired
Which of the following is/are advantages of a general partnership? (select all the correct answers) All partners have equal management rights. General partneships do not owe any taxes. Partners have limited liability for the debts of the partnership. The costs to form a partnership are minimal.
-The costs to form a partnership are minimal. - IDK
Which of the following statements is true about a partnership name? (select all the correct answers) The partnership must comply with the state's assume name provisions. The name is an asset of the partnership that may be sold or assigned. The name must comply with the Federal patent provisions. The name must include the word "company" in it.
-The partnership must comply with the state's assume name provisions. -The name is an asset of the partnership that may be sold or assigned.
Which of the following is/are a recognized advantage of doing business as a corporation? (select all the correct answers) Usury laws do not apply to corporations. Investors have extremely limited liability for the debts of the corporation. A corporation can have perpetual existence. A corporation does not have to report income for corporate revenue.
-Usury laws do not apply to corporations. -Investors have extremely limited liability for the debts of the corporation. -A corporation can have perpetual existence.
A partnership that fails to comply with a state's assumed name statute (select all the answers that are correct) Will be given a trade name by the attorney general Will not be able to use the courts of the state to sue its debtors May exposed the partners to criminal liability Will default to a Subchapter S corporation.
-Will not be able to use the courts of the state to sue its debtors -May exposed the partners to criminal liability
Subchapter S corporations are limited to _________shareholders. 35 There is no limit to the number of shareholders in a Subchapter S corporation. 100 10
100
The maximum number of shareholders a Subchapter S corporation may have is 35 25 1000 100
100
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? 45,000 to Amy; 30,000 to May; 15,000 to June 30,000 each to Amy, May and June The partners will have to determine the distribution by a 23 partnership vote. 60,000 to Amy; 20,000 to May; 10,00 to June
30,000 each to Amy, May and June
A partnership will not terminate by operation of law if The purpose of the partnership becomes illegal A partner dies A partner becomes insolvent A partner files for bankruptcy
A partner becomes insolvent
Which of the following is not required to create a partnership? A common interest and intent to conduct business activities together. An understanding to share profits and losses A written agreement between the parties. Two or more persons
A written agreement between the parties.
John was a limited partner in Commercial Properties Limited. When the general partner became ill, John took over all the management duties of Commercial Properties. Ace Office Equipment, a supplier of Commercial Properties, is suing Commercial Properties over several months of unpaid bills. Under modern laws governing the operation of limited partnerships, which of the following statements best describes John's personal liability for Commercial's debt to Ace Office Equipment? Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties. Ace can hold John personally liable for Commercial's debt because he is a limited partner in the business. Under no circumstances can John be liable beyond his capital contribution. Ace can hold John personally liable for Commercial's debt because he assumed management of Commercial.
Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.
The formal document that represents the agreement of the parties to form a partnership is the ___________. Articles of partnership Uniform Act of Partnership Partnership certificate Partnership charter
Articles of partnership
The written agreement between two or more persons that creates a partnership and sets for the rights and duties of each partner is the_____________. Articles of incorporation By laws charter Articles of partnership
Articles of partnership
Bill is a limited partner in K&L Limited Partnership. Which of the following statements about his partnership interests is false? Bill made a capital contribution to K&L Bill has a right to share in K&L profits. Bill has a right to make management decisions for K&L. Bill must share in K&L losses up to his capital contribution.
Bill has a right to make management decisions for K&L.
The agreement among the partners that spells out how the firm's assets will be valued and how the interests of a retiring or deceased partner will be bought out is a(n) ___________________ agreement. Reciprocity Buy and sell Marshalling Accounting
Buy and sell
The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order. Accounting Marshaling Charging Collection
Charging
John, a partner in KLM Partners, had a personal loan from First Bank for 35,000. First Bank got a judgment against John after he defaulted on the loan. First Bank can reach John's interest in KLM Partners and require that a receiver be appointed to take John's share of the partnership profits to satisfy the judgment. The court order that will do this is an ________________ Accounting order Charging order Attachment order Marshalling order
Charging order
What is the form of business organization that is subject to the most regulation at the state and federal level? Limited Partnership Partnership Corporation Professional Association
Corporation
Which of the following best describes the "double taxation" on corporate profits? The income an individual gets from dividends is taxed at twice the rate of the income he gets from wages. The profits of a corporation are taxed at twice the rate of the highest individual tax rate. The IRS is twice as likely to audit returns with dividend income as it is to audit returns with income from wages only. Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.
Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.
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
A partner who does not participate in management and whose existence is not known by the public is a _____________ Phantom Silent partner Secret partner Dormant partner
Dormant partner
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 Estoppel Vicarious liability The complicity theory Respondeat superior
Estoppel
A corporation can be in existence for a maximum of ninety-nine years.
False
A joint venture cannot sue or be sued.
False
A limited partnership has to have at least two general partners and at least one limited partner
False
A partner's capital contribution may consist in business experience or service to the firm.
False
A partnership is a taxable entity.
False
Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business.
False
An incoming partner has unlimited personal liability for the already existing debts of the partnership.
False
If a partner assigns his or her interest in a partnership to a creditor, the assignee steps into the shoes of the partner and becomes entitled to participate in the management of the business.
False
If a personal creditor of Partner A wants to attach A's partnership interest in satisfaction of the debt, he would do so through a marshalling order.
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.
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.
False
Partners may use partnership property for both partnership and personal reasons.
False
Partnerships are required to use the term "Company" in their names.
False
The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC.
False
The partnership must pay interest each year on the capital contributions of the partners.
False
Vic and Thom bought an antique Corvette at auction with the intent of restoring it and selling it for a profit, which they will share equally. Vic and Thom have formed a professional association.
False
In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP? Silent partners General partners Limited partners Joint partners
General partners
Which business entity is defined as "an association of two or more owners who carry on as co-owners a business for profit?" General partnership Subchapter S corporation Proprietorship Limited Liability Company
General partnership
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 no partnership rights, only liability to creditors who believed he was a partner. 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.
Which of the following issues do not require a unanimous vote of the partners? Hiring an office manager for 40 hours a week. 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.
Which of the following issues do not require a unanimous vote of the partners? Hiring an office manager for 40 hours a week. Disposal of the good will of the business Confession of a judgment against the partnership Admission of a new partner
Hiring an office manager for 40 hours a week.
Which of the following statements about a joint venture is true? It can be the defendant in a lawsuit without subjecting the individuals who form the joint venture to liability. Individuals form it to conduct a single, or very limited, business activity. It can be the plaintiff in a lawsuit without involving the individuals who form the joint venture. It is limited by statute to thirty-five members.
Individuals form it to conduct a single, or very limited, business activity.
Jim and Fred had been equal partners in J & F Industries for 20 years. Jim has died and Fred is now in the process of winding up the partnership. Which of the following statements about the winding up process is false? If there are not enough assets in the partnership to pay off all the debts, Jim's estate will be liable for one half of the losses. Jim's estate is entitled to an accounting Jim's estate is entitled to participate in the winding up process. Fred is entitled to compensation for winding up the business.
Jim's estate is entitled to participate in the winding up process
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? General partnership Joint venture Limited partnership Trading group
Joint Venture
Nelson and Jack are both avid sailors. When a sailing acquaintance put his older, but still highly desirable, boat up for sale, Nelson and Jack agreed to pool their resources to buy and fix up the boat, then sell it and split the profits. This is an example of an______ General partnership Limited partnership Joint venture Proprietorship
Joint venture
Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? Joint venture Limited partnership Professional association General partnership
Joint venture
Which of the following abbreviations would NOT be used by a professional corporation as a required part of its name? S.C. LLC Inc. PC
LLC
If a business has the power to own property, enter into contracts, and sue others in court, it is said to have corporate authority Legal capacity legal standing legal authority
Legal capacity
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? Competitive advantage Goodwill Legal capacity Business identity
Legal capacity
Which of the following statements about the limited partner in a limited partnership is false? Limited partners must approve any changes to the partnership agreement. There must be at least one limited partner. Limited partners may participate fully in the management of the partnership. 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.
What is the equitable rule that 1 distributes assets of an insolvent partnership first to creditors of the partnership and 2 does not let partnership creditors reach the assets of individual partners until the partners' personal creditors are satisfied? Marshaling of assets Comity of assets Partnership partition Equitable distribution
Marshaling of assets
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, but her capital contribution cannot be used because it is new money. Megan has no personal liability for the debts and her capital contribution cannot be used to satisfy old debts. Megan has unlimited personal liability and her entire capital contribution may be used to satisfy the debts. 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, but her entire capital contribution may be used to satisfy them.
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, only management rights are prima facie evidence of a partnership No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of 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.
Allfam is a closely held family corporation, many of whose shareholders are employees of the corporation. In an attempt to reduce its taxes, Allfam paid its shareholder-employees enormous salaries and deducted the salaries as a corporate expense. Is Allfam permitted to do this? Yes, this is a legitimate way for closely held corporations to reduce their taxes. No, the IRS will disallow the deductions for this year, but will allow the corporation to treat them as carry-forward losses for next year. No, the shareholder-employees will have do return the excess portion of their salaries to the corporation. No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.
No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.
Jim and Sid are partners in Widget Manufacturing. Jim read a letter from one of Widget's buyers asking for adequate assurances that Widget would be able to meet an upcoming contractual obligation. The demand was proper and, under Article 2, the buyer could treat the contract as breached if Widget did not respond to the demand within 3 months. Jim forgot to tell Sid about the demand and did not respond to it himself. Widget is now being sued by Buyer for 4,000 in damages for breach of contract. Sid contends that the partnership is not liable because only one partner was aware of the demand. Is Sid correct? No, the partnership is liable under the doctrine of respondeat superior No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership. Yes, as an equal owner of the business Sid was entitled to equal notice. No, Sid did not receive the notice because of his own negligence in attending to partnership correspondence.
No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.
A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership. Trading Professional Non-trading Entrepreneurial
Non-trading
Which of the following is the order in which partnership assets will be distributed upon termination of the partnership? Partner-creditors, outside-creditors, undistributed profits, capital contributions Outside-creditors, partner-creditors, capital contributions, undistributed profits. Capital contributions, outside-creditors, partner-creditors, undistributed profits. Outside-creditors, partner-creditors, undistributed profits, capital contributions.
Outside-creditors, partner-creditors, capital contributions, undistributed profits.
The business entity that consists in an association of two or more persons to carry on as co-owners a business for profit is an__________. Professional association Limited partnership Partnership Limited liability company
Partnership
When partners enter into a partnership without stating how long the partnership will last, they have formed an ____________________. Partnership for a term of years Partnership by the entireties Partnership at will Implied partnership
Partnership at will
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? Dividend retention Pass through Double taxation Income averaging
Pass through
Corporations are said to have a burden of "double tax" because 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. Profits are taxed at the corporate level as income and again at the shareholder level as dividends. 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.
Which of the following statements about the taxation of corporations is false? Premiums paid for employee health insurance plans are fully deductible. Salaries paid to employees are deductible expenses for the corporation. Most states impose license fees or franchise taxes on corporations doing business in the state. Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.
Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.
A partner who participates in the management of the partnership, but whose existence is not known to the public is a _____________ partner. Dormant Silent Secret Senior
Secret
Another name for a tax option corporation is a Joint venture Subchapter S corporation Limited liability Company Professional corporation
Subchapter S corporation
What is another name for a Subchapter S Corporation? Limited Liability Company Professional Corporation Hybrid Limited Partnership Tax option corporation
Tax option corporation
Partners hold title to partnership property as Tenants by the entireties Tenants in common Tenants in partnership Joint tenants
Tenants in partnership
A partnership need not give public notice of its dissolution if the dissolution was caused by The death of a partner The expiration of the partnership's term of years. The wrongful withdrawal of a partner The bankruptcy of a partner
The bankruptcy of a partner
Which of the following statements about proprietorships is true? The owner of a proprietorship is personally liable for all the debts of the proprietorship. A business can have up to thirty-five owners and still be a proprietorship. Proprietorships are taxable entities apart from the owners. 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.
Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false? Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name. Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of the professional corporation. They will be eligible for a tax-advantaged pension plan. They will be protected from suits for medical malpractice.
They will be protected from suits for medical malpractice.
A partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership. Code--------------------------statutory Code--------------------------common law Trading-----------------------non-trading Trading-----------------------common law
Trading-----------------------non-trading
A partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership. Trading-----------------------non-trading Code--------------------------common law Code--------------------------statutory Trading-----------------------common law
Trading-----------------------non-trading
A partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership. Trading-----------------------non-trading Trading-----------------------common law Code--------------------------common law Code--------------------------statutory
Trading-----------------------non-trading
A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out.
True
A corporation must qualify to do business in each state where it conducts business activities.
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
A limited partnership must have at least one general partner and one limited partner.
True
A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership.
True
A partnership maybe created by an express agreement between the parties or it may be implied from their conduct.
True
A person may become a partner without making a capital contribution.
True
A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income.
True
Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business.
True
If the partnership agreement does not state how long the partnership is to last, a partnership- at- will is created.
True
In a Limited Liability Company, the losses and profits pass through to the shareholders.
True
Legal capacity is the ability of an organization to sue and to own property.
True
Members of professional associations and professional corporations are eligible under the Tax Code to participate in pension and profit-sharing plans.
True
One partner has the ability to veto the admission of a new partner into the business.
True
Partner A defrauded a client of the partnership. Partners B and C are jointly and severally liable with A to the client, even though they were unaware of the fraud.
True
Partners are agents of the partnership and of the other partners individually.
True
Partners have unlimited personal liability for the debts incurred by the partnership.
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
Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses.
True
Professional corporations are business entities organized under state law.
True
Shareholders of a corporation may also be employees of that corporation.
True
Shareholders of corporations pay taxes on the dividends distributed to them by the corporation.
True
Subchapter S corporations may have a maximum of 100 shareholders.
True
The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employees.
True
The admission of a new partner automatically dissolves the partnership.
True
The bankruptcy of a partner will cause the dissolution of the partnership by operation of law.
True
The capital contribution of each partner is a liability to the partnership and must be returned to the partner when the partnership ends.
True
The surviving partner is entitled to compensation for winding up the affairs of the partnership.
True
Under RUPA, a partnership may take title to real property as a tenancy in partnership.
True
Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships
True
Unless agreed to otherwise, partners are not entitled to compensation for work done to further the interests of the partnership.
True
Usury laws do not apply to corporations when they borrow money.
True
When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called __________________. Marshaling of assets Dissolution Termination Winding up
Winding up
By statute, a limited partnership must have a minimum of ___________general partners. two five four one
one
