Chapter 3 Questions

Only his $10,000 capital contribution

Aron joins the Eco Energy partnership after Ji-woo and Martin have already formed it as a general partnership. Aron contributes $10,000 as a capital contribution. Prior to Aron joining the partnership, Ji-woo and Martin had taken out a loan in the amount of $1 million. How much of that loan will Aron be personally liable for? Only his $10,000 capital contribution His $10,000 capital contribution plus another $10,000 None of it, because the debt was incurred before Aron joined the partnership He will be liable for the full amount of the loan

Almost all of the default rules except those that govern the duties owed by the partners to each other

Each state's partnership statute (usually based on the UPA or RUPA) sets forth rules for governing general partnerships. Which of these default rules may be changed if the partners agree to do so? None of the default rules All of the default rules Almost all of the default rules except those that govern the duties owed by the partners to each other Almost all of the default rules except those that govern the rights of each partner

$50,000

If one of Jaxon's sole proprietorship hot dogs gives a customer food poisoning, and the customer sues Jaxon and wins $50,000 in court, how much of that judgment can Jaxon be made to personally pay out of pocket? $5,000 $50,000 $0 $25,000

Yes, she has usurped the business of the partnership and violated the duty of loyalty.

In addition to their partnership work at Eco Energy, Ji-woo and Martin "flip" homes: They buy homes in disrepair, fix them up, and sell them for a profit. Ji-woo and Martin have formed a general partnership for this purpose. One day while driving around, Ji-woo sees a house that was recently listed for sale that would be a perfect house to flip. She immediately buys it herself and doesn't tell Martin. She fixes it up and sells it for a profit, which she keeps. Has she violated any duties to Martin? Yes, she has engaged in self-dealing and violated the duty of loyalty. Yes, she has usurped the business of the partnership and violated the duty of loyalty. Yes, she has failed to obey their partnership agreement and violated the duty of obedience. No, she has not breached any duty.

A sole proprietorship

Jaxon wins a contest where he is awarded a lifetime supply of hot dogs, which are all delivered to his house at the same time. Afraid he will not be able to eat them all before they spoil (if hot dogs do indeed spoil), Jaxon comes up with a plan to make some money. He buys some buns and sets up a table outside a football game at his local college, where he sells hot dogs for $1 each. What kind of business organization has Jaxon created? A sole proprietorship A corporation A general partnership A limited partnership

The income tax rate for the business is much lower than the income tax rate for individuals.

Suppose Jaxon's hot dog business is wildly successful, and he decides to cash out and sell the business to his friend Amal. Amal doesn't know much about business law though, so Jaxon tries to tell her about his sole proprietorship. Which of the following is not an advantage of sole proprietorships he should tell Amal about? The income tax rate for the business is much lower than the income tax rate for individuals. Maintaining a sole proprietorship is inexpensive. The control of the business is simple because only one person makes all the decisions. No approval from anyone else is necessary to make changes to the business's operations.

Only Big Bank and Martin's loans will be paid.

The Eco Energy partnership is being dissolved. After liquidating all of its assets, the partnership is left with $700,000 in cash. Eco Energy owes Big Bank $500,000. Martin, one of the partners, is owed $250,000 for a loan he made to the partnership. The partners also contributed a total of $450,000 in capital contributions between them. Which of these debts will be paid, even if it is not paid in full? Only Big Bank and Martin's loans will be paid. Only Big Bank will be paid. Only Martin and the partners will be paid. Big Bank, Martin, and the partners will all be paid.

The right to be compensated for the hard work they do to make the partnership successful

Which of the following is a right the partners in a general partnership would have to specifically agree upon in order to exercise it? The right to participate in the management of the partnership The right to inspect the partnership's books and records The right to be compensated for the hard work they do to make the partnership successful The right to be repaid their capital contributions

Limited partners manage the partnership's business, whereas general partners only invest money

Which of the following is not true of the differences between general and limited partners in a limited partnership? General partners owe a duty of loyalty to the partnership, whereas limited partners do not. General partners have the duty to operate the partnership with reasonable care, but the limited partners do not. Limited partners do not have unlimited personal liability, but general partners do. Limited partners manage the partnership's business, whereas general partners only invest money.

An accounting firm

Which type of business is permitted to operate as a limited liability partnership (LLP) in most states? An accounting firm A high-end electronics retailer A lawn mowing service A restaurant