BUL3310 FSU Bailey Unit 13
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 because he is a limited partner in the business. 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. Under no circumstances can John be liable beyond his capital contribution.
Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.
Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership As rent For wages As an annuity to the spouse of a deceased partner All of the above
All of the above
Jay, who is a partner in an accounting firm, is being sued for malpractice by a client. If the jury finds for the client, which of the following parties will have liability on the judgment? The partnership as an entity Jay individually Each of the other partners individually All of the above have liability on the judgment.
All of the above have liability on the judgment.
The purpose of a buy and sell agreement is to Create a trading partnership Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest. Determine the compensation for partners who manage the business. Set guide lines for selling the goodwill of the business.
Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest.
The formal document that represents the agreement of the parties to form a partnership is the ___________. Partnership charter Partnership certificate Articles of partnership Uniform Act of Partnership
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 Articles of partnership By laws charter
Articles of partnership
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? 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. $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.
$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.
The maximum number of shareholders a Subchapter S corporation may have is 25 35 100 1000
35
Which of the following is NOT one of the recognized disadvantages of doing business as a corporation? A corporation must comply with a great number of state and federal regulations. Corporate profits are subject to double taxation. A corporation must qualify to do business in each state in which it engages in business activities. A corporation can be in existence for a maximum of 99 years.
A corporation can be in existence for a maximum of 99 years.
A partnership will not terminate by operation of law if A partner dies A partner files for bankruptcy A partner becomes insolvent The purpose of the partnership becomes illegal
A partner becomes insolvent
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 must share in K&L losses up to his capital contribution. Bill has a right to make management decisions for K&L.
Bill has a right to make management decisions for K&L.
Which of the following best describes the "double taxation" on corporate profits? The profits of a corporation are taxed at twice the rate of the highest individual tax rate. The income an individual gets from dividends is taxed at twice the rate of the income he gets from wages. 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.
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 The complicity theory Vicarious liability Estoppel Respondeat superior
Estoppel
A corporation can be in existence for a maximum of ninety-nine years. True False
False
A limited partnership has to have at least two general partners and at least one limited partner True False
False
A partner's capital contribution may consist in business experience or service to the firm. True False
False
Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business. True False
False
Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business. True False
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. True False
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. True False
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. True False
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. True False
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. True False
False
Partners have unlimited personal liability for the debts incurred by the partnership. True False
False
Partners may use partnership property for both partnership and personal reasons. True False
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. True False
False
In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP? General partners Joint partners Limited partners Silent 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?" Proprietorship General partnership Subchapter S corporation 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 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.
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? 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.
Hiring an office manager for 40 hours a week.
If a partnership agreement does not say how losses will be shared, they will be shared Equally among the partners Proportionately according to the capital contribution of each partner. In whatever way the profits are shared. Equally among those partners who have not made loans to the partnership
In whatever way the profits are shared.
Which of the following statements about a joint venture is true? It can be the plaintiff in a lawsuit without involving the individuals who form the joint venture. It can be the defendant in a lawsuit without subjecting the individuals who form the joint venture to liability. It is limited by statute to thirty-five members. Individuals form it to conduct a single, or very limited, business activity.
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? Fred is entitled to compensation for winding up the business. Jim's estate is entitled to an accounting Jim's estate is entitled to participate in the winding up process. 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 participate in the winding up process.
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 is an informal association of two or more persons who agree to engage as co-owners in a single business transaction? Joint venture General partnership Trading group Limited 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. PC LLC Inc.
LLC
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? Goodwill Legal capacity Business identity Competitive advantage
Legal capacity
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. There must be at least one limited partner. Limited partners must approve any changes to the partnership agreement. 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? Equitable distribution Comity of assets Marshaling of assets Partnership partition
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 and her entire capital contribution may be used to satisfy the debts. 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, but her entire capital contribution may be used to satisfy them. Megan has no personal liability for the debts and her capital contribution cannot be used to satisfy old debts.
Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them.
A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership. Professional Entrepreneurial Trading Non-trading
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, undistributed profits, capital contributions. Capital contributions, outside-creditors, partner-creditors, undistributed profits. Partner-creditors, outside-creditors, undistributed profits, capital contributions Outside-creditors, partner-creditors, capital contributions, undistributed profits.
Outside-creditors, partner-creditors, capital contributions, undistributed profits.
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? Double taxation Pass through Dividend retention Income averaging
Pass through
A partner who does not participate in the management of the partnership is a ________partner. Silent Dormant Secret Junior
Silent
Another name for a tax option corporation is a Limited liability Company Professional corporation Subchapter S corporation Joint venture
Subchapter S corporation
Which of the following statements about LLC's is false? LLC's are a relatively new form of business organization. There is an extensive body of law based on court decisions governing LLC's. Shareholders have no personal liability for the debts of the LLC. The LLC is not a taxable entity.
There is an extensive body of law based on court decisions governing LLC's.
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? They will be protected from suits for medical malpractice. They will be eligible for a tax-advantaged pension plan. 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 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 buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out. True False
True
A corporation must qualify to do business in each state where it conducts business activities. True False
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 False
True
A limited partnership must have at least one general partner and one limited partner. True False
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 False
True
A partnership maybe created by an express agreement between the parties or it may be implied from their conduct. True False
True
A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income. True False
True
If net profits are retained in a Subchapter S corporation, income tax must be paid by shareholders on these earnings even though the earnings have not yet been received. True False
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 False
True
Partnership books must be kept in the firm's place of business and be accessible to all partners True False
True
Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses. True False
True
Professional corporations are business entities organized under state law. True False
True
Shareholders of corporations pay taxes on the dividends distributed to them by the corporation. True False
True
The admission of a new partner automatically dissolves the partnership. True False
True
Usury laws do not apply to corporations when they borrow money. True False
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 __________________. Dissolution Winding up Marshaling of assets Termination
Winding up
Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? Doctors have no personal liability for medical malpractice suits. Because they are also owners of the corporation, doctors have no protection from discrimination based on age. The professional corporation can have no more than 10 owner-employee doctors. are eligible to participate in tax advantaged pension plans.
are eligible to participate in tax advantaged pension plans.
By statute, a limited partnership must have a minimum of ___________general partners. one two four five
one
