BUL Unit 13

The maximum number of shareholders a Subchapter S corporation may have is

35

Which of the following is NOT one of the recognized disadvantages of doing business as a corporation?

A corporation can be in existence for a maximum of ninety-nine years.

A partnership will not terminate by operation of law if

A partner becomes insolvent

Which of the following is not required to create a partnership?

A written agreement between the parties

Phil has a 1/4 partnership interest in Green & Sons. He has been denied access to the partnership books and records for over a year and he suspects that one of the partners has been engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil's remedy in this situation is to go to a court of equity for an ______________.

Accounting

Phil has a partnership interest in Best Bike. He has been denied access to the books and records and he suspects that one of the partners is engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil should request an______:

Accounting

An important factor to consider in the creation of a business organization is:

All of the above are important factors to consider

Which of the following would bring about the dissolution of the partnership?

All of the above would bring about the dissolution of a partnership

Subchapter S corporation will avoid double taxation if which of the following applies?

All the shareholders agree to be taxed as in a partnership

Subchapter S corporation will avoid double taxation only if which of the following applies?

All the shareholders agree to be taxed as in a partnership.

The formal document that represents the agreement of the parties to form a partnership is the ___________.

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 has a right to make management decisions for K&L.

A partnership that fails to comply with a state's assumed name statute

Both B and C

Which of the following statements is true about a partnership name?

Both a and c

The capital contribution of a partner may consist in all of the following except

Business experience

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 ________________

Charging order

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

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

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

Which of the following statements about a joint venture is true?

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

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 a ____ .

Joint venture

Partnership agreements often fund the purchase of a deceased partners' partnership interests with

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.

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

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 no personal liability for the debts, but her entire capital contribution may be used to satisfy them.

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?

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 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.

Non-trading

Which of the following is the order in which partnership assets will be distributed upon termination of the partnership?

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__________.

Partnership

When partners enter into a partnership without stating how long the partnership will last, they have formed an

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?

Pass through

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

Secret

A partner who does not participate in the management of the partnership is a ________partner.

Silent

Another name for a tax option corporation is a

Subchapter S corporation

Partners hold title to partnership property as

Tenants in partnership

A partnership need not give public notice of its dissolution if the dissolution was caused by

The bankruptcy of a partner

Which of the following statements about LLC's is false?

There is an extensive body of law based on court decisions governing LLC's.

Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true?

They are eligible to participate in tax advantaged pension plans.

What is the limit of shareholders in subchapter S corporations?

Thirty-five

A partnership whose primary business purpose is the buying and selling of goods is a ________partnership.

Trading

A Subchapter S corporation is taxed in the same way a partnership is taxed.

True

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

Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business.

True

An advantage to doing business as a corporation is that ownership interests can be transferred without impact on day-to-day business operations.

True

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

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

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

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

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

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 provisions of the law AND the partnership agreement govern the operations of the partnership.

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 __________________.

winding up

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.

AMJ Partnership has 3 partners: Amy made a 60,000 capital contribution; May, made a 20,000 capital contribution; and June made a 10,000 capital contribution. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed?

30,000 each to Amy, May and June

Which of the following decisions would require a unanimous vote of the partners?

Admitting a new partner into the partnership

Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership

All of the above

Which of the following is NOT a recognized advantage of doing business as a corporation?

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

What is the form of business organization that is subject to the most regulation at the state and federal level?

Corporation

What kind of business organization is subject to the most regulation at the state and federal level?

Corporation

Which of the following best describes the "double taxation" on corporate profits?

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.

Dissolution

A partner who does not participate in management and whose existence is not known by the public is a _____________

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

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

False

A corporation can be in existence for a maximum of ninety-nine years.

False

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

False

A joint venture cannot sue or be sued.

False

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

False

A partnerhsip cannot have a provision for the continuation of a the partnership upon the death of one of the partners.

False

A partnership is a taxable entity.

False

An incoming partner has unlimited personal liability for the already existing debts of the partnership.

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.

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

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

Marshaling of assets is the tax doctrine that allows income to be taxed only at the owner level and not at the organization level.

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

Subchapter S corporations may have a maximum of 100 shareholders.

False

The owner of a limited liability company (LLC) has unlimited personal liability for the debts of the LLC.

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

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.

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

A person who becomes a partner by estoppel

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

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

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

Which of the following abbreviations would NOT be used by a professional corporation as a required part of its name?

LLC

If a business has the power to own property, enter into contracts, and sue others in court, it is said to have

Legal capacity

States give corporations many rights, among them is 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?

Legal capacity

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.

Why are corporations said to have a burden of "double tax"?

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

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.

Which of the following statements about the taxation of corporations is false?

Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule

A partner who does not participate in the management of the business is a ____ partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a ____ partner.

Silent----------------------Secret

A partner who does not participate in the management of the business is a _________partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a _________________partner.

Silent----------------------Secret

Which of the following is not normally included in the Partnership Agreement?

The daily work schedule for each 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 partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership.

Trading-----------------------non-trading

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

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

The capital contribution of each partner is a liability to the partnership and must be returned to the partner when the partnership ends.

True

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

True

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

True

By statute, a limited partnership must have a minimum of ____________limited partners.

one

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

true

Partners have unlimited personal liability for the debts incurred by the partnership.

true

The bankruptcy of a partner will cause the dissolution of the partnership by operation of law.

true