Business Law for Accountants Chapter 38
What RULE (law) did the court apply in the NBN Broadcasting, Inc. v. Sheridan Broadcasting Networks, Inc. case? (Choose TWO correct answers)
A discontinuance with prejudice is deemed a final adjudication on the merits for res judicata purposes on the claims asserted at the time of filing. A later suit based on subsequent conduct is not barred by res judicata and a plaintiff has no obligation to expand its suit in order to add a claim.
Which of the following is correct regarding partnership agreements?
A partnership agreement may create classes of partners, some of whom may have greater voting rights.
Which of the following partnerships can be classified as a nontrading partnership engaged in providing services?
A real estate brokerage firm
Which of the following is not allowed in a partnership agreement?
An elimination of the duty of care owed to the partnership
What was the main ISSUE (legal question) the court answered in the McMillian v. McMillian case?
Are the revenues and profits of Mail Source relevant to the proper measure of damages for wrongful appropriation?
Suppose Clayton manages a business consulting firm with his partner, James. Choose one of the following scenarios that will create a conflict of interest to their partnership agreement: ____________.
Clayton sells an asset he owns to the partnership without disclosing his ownership.
If a partner does not have consent to operate a business that takes customers away from his partnership, what duty has he breached?
Duty not to compete against the partnership.
If a partner profits personally by receiving an undisclosed kickback from a partnership supplier, what duty has the partner breached?
Duty not to have an interest adverse to the partnership.
What duty may have been breached if a partner, while transacting partnership business, makes a decision that costs the partnership to lose money, unless the partner had carefully investigated and believed in good faith that she was acting in the best interests of the partnership?
Duty of care.
If a partner misappropriates a business opportunity in which the partnership had a financial interest, what duty has been breached?
Duty to account.
If a partner refuses to keep reasonable records of all business transacted by him for the partnership or to make such records available to the person keeping the partnership books, what duty has the partner breached?
Duty to account.
The requirement that partnership property only be used for partnership purposes, and not a partner's personal use is included in what duty?
Duty to account.
If a partner exceeds the authority granted to him by the partnership agreement and losses result from his unauthorized transactions, what duty has he breached?
Duty to act within actual authority.
If a partner does not share the expected responsibility for running the day-to-day operations of a partnership, which of the following duties is being violated?
Duty to serve.
According to the default rules of the Revised Uniform Partnership Act (RUPA), how are profits allocated to partners?
Equally
____________ authority is created by agreement of the partners.
Express
____________ may be stated orally, or in writing, or may be obtained by acquiescence.
Express authority
Gavin is a partner in a partnership. The authority given to Gavin that was created by stated agreement of the partners is which of the following types of authority?
Express authority.
True or false: A partner has an implied or apparent authority to sell land held for investment not in the usual course of his or her business.
False
Gavin is a partner in a partnership. The authority that Gavin has which is based on what is usual business for partnerships of the same general type is which of the following types of authority?
Implied authority.
Which of the following is correct regarding a loss-sharing agreement between partners?
It does not bind partnership creditors unless they agree to be bound.
What was the court's CONCLUSION (holding, decision) in the NBN Broadcasting, Inc. v. Sheridan Broadcasting Networks, Inc. case?
Judgment for Sheridan. Res judicata embraces all claims of NBN, excluding those claims relating to the relocation of the New York Office.
What was the court's CONCLUSION (decision, holding) in the McMillian v. McMillian case?
Judgment reversed in favor of Bruce McMillian. The revenues and profits of Mail Source are relevant to the proper measure of damages in this case.
Lexi is a partner at Toro Services (Toro), a management consulting firm. She makes an agreement with InfoTech whereby Toro will provide management consulting services for $75,000 to InfoTech, with the condition that InfoTech pay her $25,000 personally. Which of the following is correct in this case?
Lexi has placed her own interests above those of the partnership.
A partner will not be held liable for:
Losses resulting from honest errors in judgment.
If partners make no agreement on how to share profits, but do agree on a method for sharing losses, does that method govern the sharing of profits?
No. In the absence of an agreement on how to share profits, they are shared equally according to RUPA.
____________ law restricts the ability of a partner to borrow money in the name of a partnership.
Partnership
According to the default rules of the Revised Uniform Partnership Act (RUPA), how are profits distributed to partners?
Profits are distributed to partners in an amount and at a time determined by a majority of the partners.
Many partnership management articles give the managing partner or a managing partners' committee control over day-to-day management of the partnership, including:
Promotion of employees. Investing the firm's excess cash and indorsing partnership checks. Hiring.
The doctrine that holds a partnership liable for the torts of its partners or employee is the doctrine of:
Respondeat superior.
What was the court's ANALYSIS (legal reasoning) in the McMillian v. McMillian case? (Choose TWO correct answers)
Revenues and profits Mail Source earned could approximate lost revenues Corporate Mail would have earned from them When a partner wrongfully appropriates a partnership's business remaining partners may recover the profits they lost from the business opportunity
According to ___________, partners owe to the partnership and each other the highest degree of loyalty.
Revised Uniform Partnership Act
____________ merely contribute capital to their partnership and are relieved of their duty to serve.
Silent partners
Suppose Smith manages a refurbishing business with his partner, Tony. Choose one of the following scenarios that is least likely to create a conflict of interest to their partnership: ________________.
Smith and Tony are both compensated from the business' profit.
_____________ created the limited liability partnership as a means of reducing the personal liability of professional partners.
State legislatures
If a partnership wishes to give notice of a particular partner's authority or limitation on a partner's authority, the partnership can file a __ with the secretary of state or the real estate recording office.
Statement of Partnership Authority or Statement of Denial
Which form of partnership prevents the partners from being personally liable for the contractual obligations of the business?
The LLP
What RULE (law) did the court apply in the Fish v. Tex. Legislative Serv., P'ship case? (Choose TWO correct answers)
The TLS partnership states: "For each fiscal year, the partners shall receive such monthly salaries as the partners mutually agree shall be paid." Generally, partners are not entitled to compensation unless they have executed an agreement authorizing compensation, which occurred in this case
In a stock brokerage firm partnership, who is liable for an individual partner's embezzlement of a customer's securities and funds?
The individual partner, all of the senior partners, and the partnership only
What was the main ISSUE (legal question) the court answered in the Fish v. Tex. Legislative Serv., P'ship case?
The main issue is the proper interpretation and application the meaning of the phrase "partners mutually agree."
A partner's duty to keep information confidential would be considered breached if:
The partner shared trade secrets or customer lists with competitors.
If a partner competes against the partnership, without the consent of his partners, what remedy does the partnership have?
The partnership has the remedy of recovering the profits from the partner's competing venture.
When the partnership agreement is silent on how to share losses, losses are shared in the same proportion that profits are shared. What is the basis of this rule?
The presumption that partners want to share benefits and detriments in the same proportions
What RULE (law) did the court apply in the Mortgage Grader, Inc. v. Ward & Olivo, L.L.P case? (Choose TWO correct answers)
Under the UPA, the status of an LLP remains effective until the LLP itself cancels its status, or the LLP's status is revoked An LLP partner is not personally liable, directly, or indirectly, solely by reason of being or so acting as a partner.
The ______________ Act states that a partners is not entitled to a salary or wages, even if one spends a disproportionate amount of time conducting a business.
Uniform Partnership
What was the court's ANALYSIS (legal reasoning) in the Mortgage Grader, Inc. v. Ward & Olivo, L.L.P case? (Choose TWO correct answers)
Ward contends he is shielded from liability as a partner in an LLP and is not vicariously liable for the acts of his former partner, Olivo. At the time of the incident, W&O was an LLP, and Ward was not vicariously liable for the alleged malpractice of his former partner Olivo.
In a partnership, partners may give everyone notice of limitation on a partner's authority by filing __________ with the secretary of state.
a Statement of Denial
A partnership agreement of a large auditing firm states that no partner shall provide auditing services except on behalf of the partnership. Violation of this provision is an example of __________.
a breach of a partner's duty of care
A partner's compensation for working for a partnership is ______________.
a share of the profits of a business
In the absence of an agreement, the UPA requires _____________ for several important partnership actions.
a unanimous decision of all partners
A nontrading partnership includes services like _______________ and _____________ (Choose two correct answers)
accounting real estate brokerage
Respondeat superior, a legal standard that is used to determine the liability of partner's for their torts committed, is part of _____________.
agency law
A partner whose name is not on a signature card of a checking account filed with the bank has _______________ authority to issue checks only in respect to those who are unaware of the limitation on the partner's authority.
apparent
When a partner exercises ___________ authority, it appears to a third party that the partner has the actual authority to do an act.
apparent
When a partner's implied authority is restricted or eliminated, a partnership risks the possibility that _______________ authority to do a denied act will still remain.
apparent
Which of the following types of authority exists because it reasonably appears to a third party that a partner has the authority to do an act?
apparent
A partner has no __________ or ___________ authority to sell land held for investment not in the usual course of her business.
apparent implied
When a partner sells real property in the usual course of his or her business, the partner is considered to have _________ or ________ authority. (Choose two correct answers.)
apparent implied
A partner should possess either _________, __________, or __________ in order to borrow money in the name of a partnership. (Choose three correct answers.)
apparent authority implied authority express authority
Partners may file a Statement of Partnership ______________ to give everyone notice of a partner's authority or limitation in a partnership.
authority
In the Mortgage Grader, Inc. v. Ward & Olivo, L.L.P. case, the court held that when one partner commits malpractice, the other partners in the LLP __________ liable for the malpractice.
cannot be held vicariously
In transacting partnership business, each partner owes a duty of _________ to another partner.
care
A(n) __________ would be an example of a negotiable instrument.
check
The term ____________ refers to maintaining partnership information such as trade secrets or customer lists.
confidentiality
A partner may compete against his partnership if he obtains __ from his other partners.
consent
Apart from indemnification, partners paying a partnership obligation may seek ____________ from other partners who are liable for their shares of liability.
contribution
Loss-sharing agreements do not generally bind ___________ unless they agree to be bound.
creditors
A partner of a firm that leases residential property to college students allows his son to live in a partnership-owned apartment. The partner in this case has a __________.
duty to account for the use of partnership property
Frank is a partner in a partnership. He is not doing the work expected of him as a partner, so the partnership hired someone else to do Frank's work. Which of the following duties did Frank breach?
duty to serve
One true statement regarding a partner's duty to account is that: _____________.
each partner is required to keep a record of business transactions.
A partner in a partnership business is least liable for losses resulting from _____.
errors of judgment
A partner has ______________ authority to draw checks when her name appears on a signature card of a checking account filed with the bank.
express
Businesses such as __________ and _____________ are most likely to be trading partnerships. (Choose two correct answers.)
general contracting dairy farming
In a partnership, every partner is a(n) ______________ of the business and has the power to make contracts that bind a partnership.
general manager
Together, a partner's ______________ and _____________ authority, constitute her actual authority. (Choose TWO correct answers)
implied express
The scope of ______________ is determined with reference to what is usual business for partnerships of the same general type.
implied authority
A trading partnership involves businesses like ____________.
importing and exporting
On matters _________________, the vote of a(n) _______________ of the partners controls and limits the actual authority of the partners.
in the ordinary course of business majority
Partners who are sued and paying a partnership obligation may seek _____ and _____ from other partners for their share of the liability. (Choose two correct answers)
indemnification contribution
Limited liability partnership statues grant ____________ broad protection from a partner's liability for errors and negligence.
innocent partners
A mining partner has a(n)_________ against her partners' shares in a mining partnership, if the partner spent money on behalf of the mining interest partnership.
lien
Apart from a wrongdoing partner, the ___________ and the __________ are liable for the torts committed by the partner. (Choose two correct answers.)
limited liability partnership supervisor partner of the wrongdoing partner
Under RUPA, partners owe to the partnership and each other the highest degree of _________.
loyalty
A(n) _____________ has no implied authority to borrow money or issue negotiable instruments.
mining partner
Apart from partnership businesses, the fiduciary duties of partners also exist in ____________ and __________. (Choose two correct answers)
mining partnerships joint ventures
ONE true statement from the following choices would be: ____________.
most of the authority rules of partnerships apply to joint ventures and mining partnerships
While a partnership and its partners are usually liable for a partner's ______, they usually have no liability for partner's ____________________
negligence, intentional torts.
A partner has implied authority to ______________ and ____________. (Choose two correct answers)
negotiate instruments transfer instruments
A _____ partnership has no substantial inventory.
nontrading
Profits in a partnership business are shared according the ____________.
number of partners
When a partnership and the other partners are held liable for a partner's tort, they may recover the amount of their vicarious liability from the wrongdoing partner, but only if the partner fails to comply with the fiduciary duty ________.
of care
Under default RUPA rules, how many votes does each partner receive?
one
Under the default RUPA rules, each partner has ________________ the relative sizes of their partnership interests or their shares of the profits.
one vote, regardless of
One true statement about crimes committed by partners in a partnership business is that _____________.
only the partner who commits a crime in the course of business is criminally liable.
According to the RUPA, any partnership act not in the _____________ must be approved by all the partners, absent a contrary agreement of the partners.
ordinary course of business
Choose one of the following who is most likely to set the authority held by partners: _____________.
other partners
A partner's accountability means that: _______________.
partners are accountable for the use of partnership funds.
Which of the following is incorrect regarding lawsuits and partnerships?
partners cannot be sued individually on partnership obligations
Each partner in a partnership business has unlimited personal liability to ____________.
partnership creditors
Modern criminal codes usually define a partnership as a(n) ________________ that may a commit a crime when a partner engages in a criminal act.
person
Vivian and Geoffrey are partners of an accounting firm. They agree that only Geoffrey has authority to make contracts to perform audits of clients, an agreement known by Mannix Corporation (Mannix). Nonetheless, Vivian and Mannix contract for the partnership to audit Mannix's financial statements. Vivian takes the contract to Geoffrey, who reads it and says, "OK, we can perform the audit." In this situation, Geoffrey has __________ the contract.
ratified
Even if a partner commits an act without authorization, such as entering into a contract, that act may still bind the partnership if a partner with express authority ______________ the contract.
ratifies
The standards and principles of ____________ are applied in determining the liability of a partnership for the torts of a partner and other partnership employees.
respondeat superior
The duty to ___________ refers to a partner taking charge of one's responsibility in running the daily operations of a partnership business.
serve
Stephanie, Ben, and Charles are the partners of Sole-AR (Athletes Who Run) Eclipse, a general partnership that operates a shoe store. One day Stephanie's ex-husband Dutch comes into the store to buy shoes. Stephanie is still angry over the divorce. While Dutch's back is turned to Stephanie, she stabs him with a knife, inflicting serious injuries. Dutch wants to sue Stephanie, the partnership, and each partner. Who could be required to pay for Dutch's injuries?
stephanie only
One true statement about the allocation of profits to partners in a partnership business is that: _________________.
the default RUPA rule allocates profits equally to partners.
In small partnerships of ten (10) or fewer partners, the partnership agreement often requires unanimous partners' agreement for many actions, such as hiring employees and making large contracts. In small partnerships, this is an important requirement because __________.
these actions have a greater impact on each partner
A partner has a duty to maintain confidentiality of partnership information from her ______________.
third party suppliers
Suppose a partner of a firm that leases residential property to college students allows his daughter to live in a partnership-owned apartment. The partner must collect rent for the partnership from his daughter or risk breaching the duty __________.
to account
A partner's duty _____________ places limits on the activities and decisions of a partner.
to act within actual authority
The duty __________ requires partners to undertake their share of responsibility for running the day-to-day operations of the partnership business.
to serve
A(n) _____________ has an inventory and has buying and selling merchandise as its regular business.
trading partnership
The apparent authority of a partner to bind the partnership in dealing with third parties __________.
will be effectively limited by a formal resolution of the partners of which third parties are aware
