LAW 532 ch 13

a general partnership is composed of ____

at least two general partners and no limited partners. General partnerships have at least two general partners and no limited partners; limited partnerships have at least one general partner and at least one limited partner.

Which of the following entities is possible for a business with only one principal? I. Partnership II. Limited Liability Partnership III. Sole Proprietorship IV. Corporation

III and IV. Only one principal is required to form a sole proprietorship or a corporation. All other entities require at least two principals.

Which of the following methods are not available for partnerships to raise capital? I. Borrow money from a bank. II. Sell equity to private investors or partners. III. Issue a bond. IV. Sell equity through public markets such as the NYSE.

III and IV. Partnerships may not sell equity on publicly traded markets or issue bonds.

Which of the following constitutes a partnership at will?

Diane and Ralph's partnership agreement does not address when the partnership will terminate. Ideally, partners should set a specific future date or event for when the partnership will be dissolved (which can be extended by agreement). However, partnerships where the partners have not agreed to remain partners until the expiration of a definite term or event are known as partnerships at will.

A limited partner's personal liability, like a general partner's personal liability, extends to all the limited partnerships' debts and liabilities.

False. A general partner in a limited partnership is personally liable for all of the limited partnership's debts and liabilities, as if they were in a general partnership. However, limited partners do not have the same automatic personal liability of a general partner. Rather, the limited partner's liability is limited to whatever the limited partner contributed to the partnership.

A limited partnership may only have limited partners, and not general partners. Group starts

False. A limited partnership has at least one general partner (managing principal) and at least one limited partner (investing principal).

A sole proprietorship can be passed to the proprietor's heirs through a gift or an estate.

False. Although a sole proprietor may sell the assets of her business to another party, the proprietor's ownership interest in a sole proprietorship cannot pass to her heirs through a gift or an estate.

Under the Revised Uniform Limited Partnership Act (RULPA), a limited partnership must have a formal partnership agreement that details the rights, obligations, and relationships between the partners.

False. Although the RULPA does not formally require a partnership agreement, the vast majority of limited partnerships have one. That agreement details the rights, obligations, and relationships between partners.

The easiest form of business for an individual to establish and maintain is a corporation.

False. The easiest single-person ownership entity to form and maintain is a sole proprietorship. A sole proprietorship requires only a minimal fee, involves a straightforward filing requirement with the appropriate state government authority, and typically requires no annual filings. Its ease of formation and maintenance makes this entity a top choice for start-up businesses with relatively low annual revenues and expenses.

The Revised Uniform Partnership Act (RUPA) uses the term "withdrawal" to describe the act of separation whereby a partner no longer wishes to be a principal in a partnership.

False. When a partner no longer wishes to be a principal in a partnership, she may choose to leave the partnership. The RUPA uses the term "dissociation" to describe this act of separation.

Which of the following statements is true of general partnerships?

General partnerships can operate without written agreements. -While some general partnerships have extensive written agreements detailing the internal operations of the business and the rights and responsibilities of the principals, others operate without any written agreement at all. In the absence of an agreement, the Revised Uniform Partnership Act (RUPA) governs a general partnership.

Which of the following are true about withdrawal under the RULPA? I A general partner may always withdraw at any time. II. The withdrawal of a general partner does not automatically result in dissolution of the partnership. III. Withdrawal of a general partner triggers winding up. IV. Limited partners may withdraw upon 30 days notice to the other partners.

I and II. Withdrawal does not trigger dissolution or winding up. Only general partners may withdraw without restriction.

Which of the following are true about withdrawal under the RULPA? I. A general partner is permitted to withdraw at any time. II. The withdrawal of a general partner automatically results in dissolution of the partnership. III. Withdrawal requires unanimous consent. IV. Limited partners may withdraw upon six months notice to the other partners.

I and IV. Withdrawal does not trigger dissolution or winding up. Only general partners may withdraw without restriction.

Which of the following entities is possible for a business with four principals? I. partnership II. limited liability company III. sole proprietorship IV. corporation

I, II, IV. A sole proprietorship is strictly a one-person entity, and a corporation can have any number of principals. All other entities must have two or more principals.

Which of the following is an important factor in choosing a business entity? I. Ease of formation. II. Management and operation. III. Funding of the entity. IV. Proposed name of entity.

I, II, and III. The proposed name of the venture is not relevant to choosing the entity.

Which of the following are elements of a general partnership? I. Association of two or more people. II. Co-ownership and co-management of a business. III. Share in profits. IV. Ongoing relationship.

I, III, IV. A general partnership is a multiperson entity in an ongoing relationship and agreement to share profits.

Which of the following methods are available for partnerships to raise capital? I. Issue a bond. II. Sell equity to private investors or partners. III. Borrow money from partners. IV. Sell equity through public markets such as the NYSE.

II and III. Partnerships may not sell equity on publicly traded markets or issue bonds

Which of the following partnerships is not covered by the Revised Uniform Partnership Act? I. General partnerships II. Family partnerships III. Limited partnerships IV. Limited liability partnerships

II, III, and IV. The RUPA only covers general partnerships.

Lewis wishes to break off from Clarke Company and form his own business with 100 percent ownership for himself. Which of the following forms of entity are available to Lewis for his new business? I. Partnership II. Limited liability partnership III. Sole proprietorship IV. Corporation

III and IV Only one principal is required to form a sole proprietorship or a corporation. All other entities require at least two principals.

Which of the following is a drawback of a sole proprietorship?

It does not protect the principal's personal assets against the business' unpaid debts and liabilities. -The chief drawback to a sole proprietorship is a complete lack of protection of the principal's personal assets for unpaid debts and liabilities of the business. All debts and liabilities of the business are also treated as personal debts and liabilities of the principal.

Edgar and Julie are co-owners of a business entity. Because of this ownership interest, they are referred to as the venture's ___________.

Principals. Owners of a business entity are referred to as principals

The Federal Trade Commission regulations relating to franchises are designed primarily to do which of the following?

Provide full disclosure of relevant information about the franchise, prior to the franchisee's investment. -The FTC is the federal regulatory authority that oversees the regulation of franchisors. The FTC regulations are primarily designed to ensure full disclosure of all information relating to a franchise company prior to a franchisee's investment.

Boswell is a sole proprietor and negligently injures Roberts while providing construction services. Boswell is found liable for the injury, and Roberts obtains a judgment against Boswell for $100,000. Boswell's business is out of assets. Which of the following is true?

Roberts may execute the judgment against Boswell's personal assets. Sole proprietors are personally liable for all debts and liabilities of the business.

Boswell is a sole proprietor who prepares tax returns for Roberts. Boswell negligently files a tax return with a serious error that results in Roberts being fined $10,000 by tax authorities. Roberts obtains a judgment against Boswell for $10,000. Which of the following is true?

Roberts may execute the judgment against Boswell's personal assets. Sole proprietors are personally liable for all debts and liabilities of the business.

Romulus, Remus, and Caesar form RRC L.P., a limited partnership to develop land for a shopping center. Romulus and Remus are general partners, while Caesar is a limited partner. During RRC's first month in business, Remus negligently injures a third party while clearing land. The injured party obtains a judgment against the partnership. If the business assets of RRC are not sufficient to pay the judgment, where may the injured party turn for the balance?

Romulus or remus. General partners have joint and several liability for all debts and liabilities of the partnerships.

In choosing a business entity, principals should consider the extent to which they are personally liable for the debt and other contract or tort liabilities of the business entity itself.

True. -In choosing a business entity, principals should consider the extent to which they are personally liable for debt and other contract or tort liabilities of the business entity itself. Each form of entity has its attendant advantages and drawbacks and a variety of legal consequences for the owners, known as "principals", of the business.

General partnerships are created by when two or more principals demonstrate their intent to carry on as co-owners of a business for profit, even when they have not filed a form with a government agency.

True. Unlike most business entities, general partnerships are not created by filing a form with a government agency. Instead, the law recognizes two or more principals as being a general partnership if they have demonstrated an intent to carry on as co-owners of a business for profit.

When a partner dissociates herself (rightfully or wrongfully) from a general partnership, the partnership does not automatically dissolve and may continue with the remaining partners.

True. When a partner dissociates herself (rightfully or wrongfully) from a general partnership, the partnership does not automatically dissolve. In fact, the Revised Uniform Partnership Act (RUPA) leans toward the notion that the partnership can continue.

Marcela does all of the advertising, marketing, and sales for Finn's cookie delivery service in exchange for twenty percent of the profits. Even though they have not entered into a formal partnership agreement, Marcela and Finn may be considered general partners under the theory of implied partnership.

True. While, the parties may not actually intend to be partners, the law can still recognize their relationship as an implied partnership. The law recognizes two or more principals as being a general partnership if they have demonstrated an intent to carry on as co-owners of a business for profit. While some general partnerships have extensive written agreements detailing the internal operations of the business and the rights and responsibilities of the principals, others operate without any written agreement at all. In the absence of an agreement, the Revised Uniform Partnership Act (RUPA) governs a general partnership.

An existing entity that wishes to distribute its products to a broader market without the overhead costs of retail space, equipment, and employees can do so through the use of a(n) _________________.

franchise. An existing entity that wishes to distribute its products to a broader market without the overhead costs of retail space, equipment, and employees can do so through the use of a franchise.

According to the Revised Uniform Partnership Act (RUPA), when a partner exercises a rightful dissociation, the partner

is no longer liable for debts incurred by the partnership. According to the RUPA, when a partner exercises a rightful dissociation, she is no longer liable for the debts and liabilities incurred by the partnership. Although the partner is still liable for predissociation liability, she no longer owes any fiduciary duty to the partnership or the remaining principals.

A sole proprietorship ____.

is not subject to corporate income taxation. A sole proprietorship is not subject to corporate income taxation, and the principal does not file a separate tax return on behalf of the business. Rather, the principal reports business income and expenses on her own individual tax return and pays taxes on business income (or deducts business losses) based on her own individual tax rate.

which of the following is true about limited partnership?

it has at least one general partner and at least one limited partner. General partnerships have at least two general partners and no limited partners; limited partnerships have at least one general partner and at least one limited partner.

The RUPA imposes ___________ liability on general partners for debts and liabilities of the partnership.

joint and several. General partners are jointly and severally liable for debts and liabilities of the partnership.

General partners have ________ liability for any debts and liabilities related to operation of the partnership.

joint and several. General partners are jointly and severally liable for debts and liabilities of the partnership.

Carmen, Esther, and Dan have a general partnership to operate a construction company. Carmen owns 60% of the company and Esther and Dan each own 20%. A passerby was recently injured at one of their sites and obtained a judgment against the company for her extensive medical bills and other damages. If the business' assets are insufficient to cover the damages, the general partners' personal assets are at risk

jointly and severally, regardless of their percentage of ownership interest in the partnership. -General partners' personal assets are at risk for the full amount of the debts and liabilities of the partnership jointly (all partners together) and severally (each and every partner separately) regardless of their percentage of ownership interest in the partnership.

A sole proprietorship is the easiest single-person entity to form and maintain. However, the biggest disadvantage is ____________________.

lack of protection for personal assets from business liabilities. Sole proprietors' personal assets are at risk for all debts and liabilities of the business.

the chief drawback to sole proprietorship form of entity is ____

lack of protection for personal assets from business liabilities. Sole proprietors' personal assets are at risk for all debts and liabilities of the business.

One of the primary differences between a general partnership and a limited partnership is that

partners in a general partnership are permitted to bind the partnership; limited partners do not have the authority to bind the partnership. -One of the primary differences between general partners and limited partners is the extent to which they are permitted to be involved in day-to-day operations of the business. General partners manage the business and are permitted to bind the partnership. Limited partners may engage in consulting and contribute expertise but may not engage in management activities such as supervision of employees.

A business entity has at least one or more _______, who are the owners of the company.

principals. Owners of a business entity are referred to as principals.

Those with ownership interests in a business entity are called which of the following?

principals. Owners of a business entity are referred to as principals.

Romulus, Remus, and Caesar form RRC L.P., a limited partnership to develop land for a shopping center. Romulus and Remus are general partners, while Caesar is a limited partner. Romulus borrows money for the partnership from a local bank without Remus's or Caesar's knowledge. If the business assets of RRC are not sufficient to pay back the loan, where may the bank turn for the balance of the loan?

romulus or remus. General partners have joint and several liability for all debts and liabilities of the partnership.

Under a typical franchise agreement, the franchisor sells the franchisee the right to do all of the following, except

sell the business' retail space to a third party. -An existing entity that wishes to distribute its products to a broader market without the overhead costs of retail space, equipment, and employees can do so through the use of a franchise. A franchise should be thought of as a method of conducting business that centers on a contractual relationship rather than as a business entity. Federal statutes define a franchise as an arrangement of a continuing commercial relationship for the right to operate a business pursuant to the franchisor's trade name or to sell the seller's branded goods. A franchise involves the franchisor, a business entity that has a proven track record of success, selling to a franchisee the right to operate the business and use the business's trade secrets, trademarks, products, and so on.

General partnerships can be funded in a number of ways, except

selling ownership rights through public markets. -General partnerships are generally funded either through debt or through a sale of equity. Partnerships may not, however, sell ownership rights through the public markets, such as the New York Stock Exchange. Sometimes general partners hedge their financial investment through a combination of debt and equity.

Limited partners are sometimes referred to as _____________.

silent partners. Although sometimes limited partners are referred to colloquially as silent partners, limited partners have the right to access partnership information