Law Test 3 - SU 15: Non-Corporate Bus. Entities; Rhodes Ole Miss

A partner's interest in specific partnership property is Assignable to the Partner's Individual Creditor's: Subject to Attachment by the Partner's Individual Creditors:

Assignable to the Partner's Individual Creditor's: No Subject to Attachment by the Partner's Individual Creditors: No A partner may assign his or her interest in the partnership but is not allowed to assign rights in specific partnership property. A partner's individual creditors may not attach partnership property but may charge a partner's interest in the partnership. Only a claim against the entire partnership allows specific partnership property to be attached.

Gillie, Taft, and Dall are partners in an architectural firm. The partnership agreement is silent about the payment of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half-time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50% of the business, and Gillie and Taft 25% each. How should profits of $120,000 for the year be divided? Gillie: Taft: Dall:

Gillie: $40,000 Taft: $40,000 Dall: $40,000

The certificate of limited partnership filed in the public records must contain A. The name of the partnership and the names of the general partners. B. The general character of the business. C. The contribution of each partner (general and limited). D. The amount of each limited partner's liability.

The name of the partnership and the names of the general partners. To create a limited partnership, RULPA requires that its members sign and file a certificate disclosing (1) the name of the limited partnership, (2) the address of its office, (3) the names and addresses of each general partner, (4) the name and address of its agent for service of process, and (5) the date of termination.

Which of the following will cause the dissolution of a limited partnership? A. The death of a limited partner whose estate is insolvent. B. The occurrence of the time specified in the partners' agreement. C. The investment of a limited partner's capital contribution in a competing limited partnership. D. Sale of a limited partnership interest.

The occurrence of the time specified in the partners' agreement. A limited partnership is dissolved when (1) the time or event specified in the limited partnership agreement occurs; (2) all the partners agree, in writing, to dissolve; (3) an event of withdrawal of the only general partner occurs; or (4) the limited partnership is dissolved by court order.

Which of the following is false regarding the taxation of a sole proprietorship? A. Sole proprietorships are subject to tax at both the business and individual level. B. All business deductions and losses carry straight through to the proprietor. C. Income of the business must be reported by the proprietor. D. The sole proprietorship only requires the filing of one return.

Sole proprietorships are subject to tax at both the business and individual level. The proprietor and proprietorship are not distinct entities. All business income and loss is reported by the proprietor on his or her return. As a result, two major tax advantages of the sole proprietor are the need to file only one return and the avoidance of double taxation of corporate earnings paid as dividends.

D, E, F, and G formed a general partnership. Their written partnership agreement provides that the profits will be divided so that D will receive 40%; E, 30%; F, 20%; and G, 10%. There is no provision for allocating losses. At the end of its first year, the partnership has losses of $200,000. Before allocating losses, the partners' capital account balances are D, $120,000; E, $100,000; F, $75,000; and G, $11,000. G refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. What is G's share of the partnership losses? A. $9,000 B. $20,000 C. $39,000 D. $50,000

$20,000 The partnership agreement, to the extent it allocates partnership losses among partners, governs. Without an agreement, a partner shares losses in the same proportion (s)he shares profits. The partnership agreement, to the extent it allocates partnership profits among partners, governs. Thus, G's share of the losses is 10% of $200,000.

The partnership agreement for Owen Associates, a general partnership, provided that profits be paid to the partners in the ratio of their financial contribution to the partnership. Moore contributed $10,000, Noon contributed $30,000, and Kale contributed $50,000. For the year ended December 31, Owen had losses of $180,000. What amount of the losses should be allocated to Kale? A. $20,000 B. $60,000 C. $90,000 D. $100,000

$100,000 The partnership agreement specifies that profits are to be allocated based on financial contributions. The RUPA provides that, unless otherwise agreed, losses are allocated in the same manner as profits. Thus, Kale will be allocated losses of $100,000 {$180,000 × [$50,000 ÷ ($10,000 + $30,000 + $50,000)]}.

Wilson and Thomas are partners. Wilson contributed $150,000 to the partnership, and Thomas contributed $50,000. Wilson does 40% of the work, and Thomas does 60%. They do not have a partnership agreement that addresses the sharing of profits and losses. By the end of the year, the partnership has earned a profit of $200,000. What is Wilson's share of the profit under the Revised Uniform Partnership Act? A. $80,000 B. $100,000 C. $120,000 D. $150,000

$100,000 Unless the partners agree otherwise, profits are shared equally. Furthermore, losses are shared in the same proportion as profits. Thus, Wilson's profit share is $100,000 [$200,000 × (1 partner ÷ 2 partners)].

Smith and James were partners in S and J Partnership. The partnership agreement stated that all profits and losses were allocated 60% to Smith and 40% to James. The partners decided to terminate and wind up the partnership. The following was the balance sheet for S and J on the day of the windup: Cash $40,000 Accounts receivable 12,000 Property and equipment 38,000 Total assets $90,000 Accounts payable $24,000 Smith, capital 30,000 James, capital 36,000 Total liabilities and capital $90,000 Of the total accounts receivable, $10,000 was collected, and the remainder was written off as bad debt. All liabilities of S and J were paid by the partnership. The property and equipment are sold for $32,000. Under the Revised Uniform Partnership Act, what amount of cash was distributed to Smith? A. $25,200 B. $26,000 C. $30,000 D. $34,800

$25,200 During the winding up process, all assets of the entity are sold, the creditors are paid, any remaining assets are distributed, and the entity is dissolved. The loss on accounts receivable is $2,000 ($12,000 - $10,000 collected). The loss on property and equipment is $6,000 ($38,000 - $32,000 collected). Thus, the partnership must recognize $8,000 in losses. After paying the creditors, the total cash to be distributed is $58,000 ($40,000 + $10,000 - $24,000 + $32,000). Accordingly, the amount distributed to Smith is $25,200 [$30,000 capital - ($8,000 loss × 60%)]. The amount distributed to James is $32,800 [$36,000 capital - ($8,000 loss × 40%)].

D, E, F, and G formed a general partnership. Their written partnership agreement provides that the profits will be divided so that D will receive 40%; E, 30%; F, 20%; and G, 10%. There is no provision for allocating losses. At the end of its first year, the partnership has losses of $200,000. Before allocating losses, the partners' capital account balances are D, $120,000; E, $100,000; F, $75,000; and G, $11,000. G refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. After losses are allocated to the partners' capital accounts and all liabilities are paid, the partnership's sole asset is $106,000 in cash. How much will E receive on dissolution of the partnership? A. $29,500 B. $35,333 C. $37,000 D. $40,000

$37,000 Without an agreement, the loss is allocated in the same proportion as profits (D, $80,000; E, $60,000; F, $40,000; G, $20,000). G's excess over his or her capital account balance ($9,000) must be allocated to the other partners in the same ratio as that for sharing profits (40%:30%:20%). Thus, $4,000 [$9,000 × (4 ÷ 9)] is allocated to D, $3,000 [$9,000 × (3 ÷ 9)] to E, and $2,000 [$9,000 × (2 ÷ 9)] to F. The $106,000 is allocated in full to the balance of partnership capital accounts (D, $36,000; E, $37,000; F, $33,000).

Fact Pattern: Downs, Frey, and Vick formed the DFV General Partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for 5 years. After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000. Vick's share of the undistributed losses will be

$9,000 If the partnership agreement does not specifically allocate losses, they are shared in the same proportion as profits. Vick's share of the losses is $9,000 ($30,000 × 30%).

Which of the following statements is true with respect to a limited partnership? A. A limited partner may not be an unsecured creditor of the limited partnership. B. A general partner may not also be a limited partner at the same time. C. A general partner may be a secured creditor of the limited partnership. D. A limited partnership can be formed with limited liability for all partners.

A general partner may be a secured creditor of the limited partnership. A limited partner's liability is limited to his or her contributions to partnership capital. But a limited partnership must have at least one general partner with unlimited liability. A general partner may be another partnership, a corporation, or another entity. A general partner also may be a limited partner. A limited partner and the partnership may engage in transactions such as extending secured credit or property sales.

Absent any contrary provisions in the agreement, under which of the following circumstances will a limited partnership be dissolved? A. A limited partner dies and his or her estate is insolvent. B. A personal creditor of a general partner obtains a judgment against the general partner's interest in the limited partnership. C. A general partner retires and all the remaining general partners do not consent to continue. D. A limited partner assigns his or her partnership interest to an outsider and the purchaser becomes a substituted limited partner.

A general partner retires and all the remaining general partners do not consent to continue. Retirement of a general partner generally dissolves a limited partnership or a general partnership. However, dissolution can be avoided if the business is continued by the remaining general partners either with the consent of all partners or pursuant to a stipulation in the partnership agreement.

What type of business organization may generally be formed without filing an organizational document or certificate with a state government agency or office? A. A corporation. B. A limited liability company. C. A general partnership. D. A limited partnership.

A general partnership. An advantage of the general partnership is that it can be created without any formalities. No filings are required, and the existence of the partnership may arise from a written or oral agreement.

What business entity can be voluntarily dissolved and terminated without filing a dissolution document with the state of organization? A. A corporation. B. A general partnership. C. A limited liability partnership. D. A limited partnership.

A general partnership. In a partnership at will, dissolution results from notice of a partner's express will to withdraw and certain other events. No filing is required, but a statement of dissolution may be filed by any partner who has not wrongfully dissociated.

The most significant distinction between a general partner and a joint venturer is that A. A joint venturer is personally liable for debts of the entity. B. A joint venturer has less apparent authority. C. Only a partner has a right to an accounting. D. Neither is liable for taxes on entity profits.

A joint venturer is personally liable for debts of the entity. The most significant difference between joint venturers and partners is that joint venturers typically have less implied and apparent authority to bind their associates due to the limited scope of the joint venture. Thus, an advantage of the joint venture is that no joint venture is liable for similar activities of other joint ventures outside the scope of the venture.

In general, which of the following statements is true with respect to a limited partnership? A. A limited partner has the right to obtain from the general partner(s) financial information and tax returns of the limited partnership. B. A limited partnership can be formed with limited liability for all partners. C. A limited partner may not also be a general partner at the same time. D. A limited partner may hire employees on behalf of the partnership.

A limited partner has the right to obtain from the general partner(s) financial information and tax returns of the limited partnership. Both general and limited partners have the right to inspect and copy the books of the partnership at any time. Thus, they can obtain financial information and tax returns of the limited partnership.

In which of the following situations will a limited partner most likely lose limited liability status? A. A limited partner serves as an employee or contractor for the limited partnership. B. A limited partner participates in control of the partnership by serving as its agent. C. A limited partner acts as a consultant to a general partner. D. A limited partner attends a partners' meeting.

A limited partner participates in control of the partnership by serving as its agent. A limited partner has no authority to participate in management and control of the business. Participation in control of the partnership causes the limited partner to be personally liable to persons who (1) transact business with the partnership and (2) reasonably believe, based on the limited partner's conduct, that such partner is a general partner. For example, service as an agent most likely constitutes participation in management and control. A general partner is an agent of the partnership.

What term is used to describe a partnership without a specified duration? A. A perpetual partnership. B. A partnership by estoppel. C. An indefinite partnership. D. A partnership at will.

A partnership at will. A partnership at will is one "in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking" (RUPA).

A general partner will not be personally liable for which of the following acts or transactions? A. The gross negligence of one of the partnership's employees while carrying out the partnership business. B. A contract entered into by the majority of the other partners but to which the general partner objects. C. A personal mortgage loan obtained by one of the other partners on his or her residence to which that partner, without authority, signed the partnership name on the note. D. A contract entered into by the partnership in which the other partners agree among themselves to hold the general partner harmless.

A personal mortgage loan obtained by one of the other partners on his or her residence to which that partner, without authority, signed the partnership name on the note. A general partner is not personally liable if another partner signs the partnership name to a note securing a mortgage on his or her personal residence. Such an act is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership. This act binds the partnership only if authorized by the other partners. Reasonable third parties should realize that the partner lacked the apparent authority to bind the partnership for personal benefit and therefore should require proof of express authority.

Which of the following statements is true regarding sole proprietorships? A. Equity capital from outside sources can be easily raised. B. The proprietor has authority to make management decisions in accordance with rules set by the Small Business Administration. C. A sole proprietorship located and registered in Florida also may operate in Nevada and Michigan without having to register formally in those states. D. An advantage of the sole proprietorship is its continuation after the proprietor dies.

A sole proprietorship located and registered in Florida also may operate in Nevada and Michigan without having to register formally in those states. An advantage of the sole proprietorship is its ability to do business in any state without having to file, register, or otherwise qualify to do business in that state.

In a general partnership, which of the following acts must be approved by all the partners? A. Dissolution of the partnership. B. Admission of a partner. C. Authorization of a partnership capital expenditure. D. Conveyance of real property owned by the partnership.

Admission of a partner. The right to choose associates means that no partner may be forced to accept any person as a partner. The RUPA states, "A person may become a partner only with the consent of all of the partners." When a partner transfers his or her interest to another, the purchaser or other transferee is entitled only to receive the share of profits and losses and the right to distributions allocated to the interest (s)he has acquired.

Harry, Harriet, and Horance operate the Triple H used car lot as a general partnership. Pursuant to their agreement, each drives a Triple H vehicle to and from work, makes various business trips about the city either from home or the lot, and keeps a "for sale" sign displayed in the vehicle's windshield. Each car is for sale at all times of the day and night and at any location. One afternoon, Harriet was driving on a business trip when her car collided with one driven by Paine, who was seriously injured. Harriet's conduct was found to be criminally negligent. In a tort action by Paine against Harry, Harriet, and Horance, both as individuals and as the Triple H partnership, who is liable? A. All defendants because Harriet was acting within the ordinary course of the partnership business. B. Only Harriet because her tort was not authorized by the other partners. C. Only Harriet because a crime cannot be imputed to the partnership. D. Only Harriet and Triple H.

All defendants because Harriet was acting within the ordinary course of the partnership business. Loss or injury caused to any person not a partner by the wrongful act or omission or other actionable conduct of a partner acting in the ordinary course of the partnership business or with authority of the partnership results in liability to the partnership. If the partnership is liable, each partner has joint and several liability for the partnership obligation. Because the Triple H partnership business was not transacted solely at the lot but was carried on wherever the partners and their cars happened to be, Harriet was acting within the ordinary course of the partnership business, and the partnership and the partners are therefore liable in tort.

The assignee of a partnership interest (limited or general) may become a limited partner if A. All partners agree. B. The limited partner becomes subject to a charging order. C. The assignee-limited partner becomes subject to all liabilities of the assignor. D. All of the answers are correct.

All partners agree. The assignee of a partnership interest may become a limited partner if all partners agree or if the partnership agreement gives the assignor the right to confer limited partner status on the assignee. If limited status is conferred on the assignee, the assignee-limited partner is subject to the known liabilities of the assignor.

Armer, Ltd. is a limited partnership that invests in pork bellies. To obtain additional capital, the general partners want to admit additional limited partners. Some of the existing limited partners are unhappy with their investments and want to sell their interests. The certificate and agreement of limited partnership provide no guidelines. Which of the following statements is true? A. All partners must unanimously consent to admitting additional limited partners. B. If the limited partners may assign their interests, the general partners may admit additional limited partners without the consent of the existing limited partners. C. An assignee of a limited partnership interest becomes a limited partner. D. A limited partner must give the general partners 10 days' notice prior to assigning his or her interest.

All partners must unanimously consent to admitting additional limited partners. Without a provision to the contrary in the partnership agreement, the general partners cannot admit additional limited partners without the unanimous written consent or ratification of all partners (limited and general). This restriction protects the existing partners' proportionate interests in the partnership.

A joint venture is A. An association limited to no more than two persons in business for profit. B. An enterprise of numerous co-owners in a nonprofit undertaking. C. A corporate enterprise for a single undertaking of limited duration. D. An association of persons engaged as co-owners in a single undertaking for profit.

An association of persons engaged as co-owners in a single undertaking for profit. A joint venture is similar to a partnership, but it does not carry on a business. The joint venture is an association of persons to undertake a specific business project for profit.

General partnerships and LLPs vary in terms of A. Termination. B. Capitalization. C. Taxation. D. Liability.

Liability Although partners in general partnerships are each personally liable for the entire partnership, partners in an LLP are shielded from personal liability for any partnership obligation incurred while the partnership was an LLP.

Bob decides to start a bicycle repair shop. He is the sole owner and raises additional capital by borrowing from a local bank. Which of the following may become at risk if Bob defaults on the repayment of the loan? Assets of the Bicycle Repair Shop: Bob's Equity Capital Invested: Bob's Personal Assets:

Assets of the Bicycle Repair Shop: Yes Bob's Equity Capital Invested: Yes Bob's Personal Assets: Yes Proprietors have unlimited personal liability for all losses and debts. All of Bob's assets related to the bicycle repair shop and even his personal assets may be at risk. Depending on the extent of the defaulting loan, the bank may claim rights against all of Bob's assets.

B approached L and proposed they form a partnership to exploit a profitable idea of B's. L declined, citing the risk of unlimited liability. B then proposed that L lend B $50,000 and that B go into the business as a sole proprietor. L would receive half the profits and the right to veto any of B's decisions. The debt would have a long-term maturity date to facilitate operation of the business during its development stage. If L accepts the above proposition, the likely result is that

B and L have formed a partnership even if they did not intend to. A partnership can be formed without actual intent if an association of two or more persons exists to carry on a business as co-owners for profit. In addition to sharing in profits, L funded the venture and has the right to participate in management. Thus, B and L's arrangement constitutes co-ownership, and a partnership was formed.

Marshall formed a limited partnership for the purpose of engaging in the export-import business. Marshall obtained additional working capital from Franklin and Lee by selling them each a limited partnership interest. Under these circumstances, the limited partnership A. Will usually be treated as a taxable entity for federal income tax purposes. B. Will lose its status as a limited partnership if it has more than one general partner. C. Can limit the liability of all partners. D. Can exist as such only if it is formed under the authority of a state statute.

Can exist as such only if it is formed under the authority of a state statute. The limited partnership is not available as a form of business organization under the common law. An organization purporting to be a limited partnership but formed in a state with no statutory authority for such a form of business organization will very likely be treated as a general partnership.

Fox, Harrison, and Dodge are the general partners of a limited partnership. If the limited partnership certificate is silent on these matters, the general partners A. Can admit additional general partners without consent of the limited partners if the general partners vote unanimously to do so. B. Cannot admit additional limited partners absent unanimous written consent or ratification by the limited partners. C. Can admit additional limited partners if a majority of the general and limited partners consent to do so. D. Cannot admit any general or limited partners without amending the partnership agreement.

Cannot admit additional limited partners absent unanimous written consent or ratification by the limited partners. Without a provision to the contrary in the partnership agreement, the general partners cannot admit additional limited partners without the unanimous written consent or ratification of all partners (limited and general). This requirement protects the existing partners' proportionate interest in the partnership.

When parties intend to create a partnership that will be recognized under the Revised Uniform Partnership Act, they must agree to Conduct Business for a Profit: Share Gross Receipts from a Business:

Conduct Business for a Profit: Yes Share Gross Receipts from a Business: No A partnership is an association of two or more persons conducting a business, which they co-own, for profit. Thus, partners must objectively intend that their business make a profit, even if no profit is earned. Each of the parties must be a co-owner. They share profits and losses of the venture and management authority (unless they agree otherwise).

Dawn was properly admitted as a partner in the ABC Partnership after purchasing Jim's partnership interest. Jim immediately withdrew. The partnership agreement states that the partnership will continue on the withdrawal or admission of a partner. Unless the partners otherwise agree, A. Dawn's personal liability for existing partnership debts will be limited to Dawn's interest in partnership property. B. Jim will automatically be released from personal liability for partnership debts incurred before Dawn's admission. C. Jim will be permitted to recover from the other partners the full amount that Jim paid on account of partnership debts incurred before Dawn's admission. D. Dawn will be subjected to unlimited personal liability for partnership debts incurred before being admitted.

Dawn's personal liability for existing partnership debts will be limited to Dawn's interest in partnership property. As a new partner, Dawn's liability for previously existing partnership debts is limited to the amount of her capital contribution, which is Dawn's interest in partnership property.

Fact Pattern: Downs, Frey, and Vick formed the DFV General Partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for 5 years. After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000. Under the RUPA, if Frey died before the partnership terminated, A. Downs and Vick, as a majority of the partners, would have been able to continue the partnership. B. The partnership would have continued even if Downs and Vick decided not to purchase Frey's partnership interest. C. The partnership would automatically dissolve. D. Downs and Vick would have Frey's interest in the partnership.

Downs and Vick, as a majority of the partners, would have been able to continue the partnership. The death of any partner does not dissolve the partnership. The death of a partner results in dissociation. Downs and Vick may continue the partnership after purchasing Frey's partnership interest.

The partners of College Assoc., a general partnership, decided to dissolve the partnership and agreed that none of the partners would continue to use the partnership name. Which of the following events will occur on dissolution of the partnership? Each Partner's Existing Liability Would Be Discharged: Each Partner's Apparent Authority Would Continue:

Each Partner's Existing Liability Would Be Discharged: No Each Partner's Apparent Authority Would Continue: Yes Dissolution can occur by an agreement of the partners to end the partnership. Although actual authority to act on behalf of the partnership ceases at dissolution, apparent authority to conduct business in the usual way continues until notice is given to third parties or the partnership business winds up. A partner's liability for the existing obligations of the partnership does not cease when the partnership is terminated. The unilateral act of the partners cannot discharge obligations to third parties.

Which of the following statements is true concerning liability when a partner in a general partnership commits a tort while engaged in partnership business? A. The partner committing the tort is the only party liable. B. The partnership is the only party liable. C. Each partner is jointly and severally liable. D. Each partner is liable to pay an equal share of any judgment.

Each partner is jointly and severally liable. Partners are jointly and severally liable for the torts committed by another partner who acted within the ordinary course of the partnership business or with the authorization of the other partners. Joint and several liability means that all of the partners are liable, but a third party may hold any partner liable for the entire amount. Under the RUPA, joint and several liability is also imposed for all partnership obligations, not merely those arising from torts.

Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment against both Venture and Eller. Venture then entered bankruptcy. Under the RUPA, Trent will generally be able to collect the judgment in full from A. Partnership assets but not partner personal assets. B. The personal assets of Eller, Fort, and Owens. C. Eller's personal assets only after partnership assets are exhausted. D. Eller's personal assets.

Eller's personal assets. The RUPA provides that partners are jointly and severally liable for all obligations of the partnership, including those arising out of a contract. The keys to the question are that (1) Trent sued both the partnership and one partner, (2) that partner can be held individually liable for the entire amount of a partnership obligation (joint and several liability), and (3) only parties who are judgment debtors can be held liable. Because Trent won the lawsuit against Venture and Eller, either Venture or Eller or both are liable for the judgment amount. In this scenario, the partnership is in bankruptcy. A plaintiff with a judgment against a defendant in bankruptcy typically collects very little, if any, of the judgment. The judgment against the partnership will be subordinated to the claims of secured creditors and creditors with priority. As a result, Trent will likely seek to recover the full judgment from Eller's personal assets, given that Eller was a co-defendant in the lawsuit. Furthermore, because Venture is in bankruptcy, the RUPA provides that Trent need not seek a writ of execution against (compel collection of the judgment amount from) Venture before proceeding against Eller's personal assets.

Which of the following statements is true regarding the division of profits in a general partnership when the written partnership agreement only provides that losses be divided equally among the partners? Profits are to be divided A. Based on the partners' ratio of contribution to the partnership. B. Based on the partners' participation in day-to-day management. C. Equally among the partners. D. Proportionately among the partners.

Equally among the partners. The partnership agreement, to the extent it allocates partnership profits and losses among partners, governs. Without an agreement, each partner is entitled to an equal share of profits and must contribute toward losses in the same proportion (s)he is entitled to share in profits.

James Fine is doing business as Fine's Apparels, a sole proprietorship. In the past year Fine had regularly joined with Charles Walters in the marketing of bathing suits and beach accessories. Which of the following factors is the most important in ascertaining whether Fine and Walters have created a partnership relationship? A. A partnership agreement is not in existence. B. Each has a separate business of his own that he operates independently. C. Fine and Walters divide the net profits equally on a quarterly basis. D. Fine and Walters did not intend to be partners.

Fine and Walters divide the net profits equally on a quarterly basis. The co-owners must intend that the business make a profit. Thus, the RUPA presumes that a person who receives a share of the profits of a business is a co-owner and therefore a partner in the business. However, this presumption does not exist if the profits are received (1) in payment of a debt, (2) as wages or rent, (3) as interest on a loan, (4) as payment for sale, or (5) as an annuity or other retirement or health benefit to a deceased partner's representative.

Ms. Wall is a limited partner of the Amalgamated Limited Partnership. She is insolvent, and her debts exceed her assets by $28,000. Goldsmith, one of Wall's largest creditors, is resorting to legal process to obtain the payment of Wall's debt to him. Goldsmith has obtained a charging order against Wall's limited partnership interest for the unsatisfied amount of the debt. As a result of Goldsmith's action, which of the following will happen? A. The partnership will be dissolved. B. Wall's partnership interest must be redeemed with partnership property. C. Goldsmith automatically becomes a substituted limited partner. D. Goldsmith becomes in effect an assignee of Wall's partnership interest.

Goldsmith becomes in effect an assignee of Wall's partnership interest. A charging order is a court order that has the effect of an involuntary assignment of the limited partner's interest to the judgment-creditor (or an independent third party called a receiver). The limited partner's interest may be temporarily assigned until the profits distributed pay off the debt, or it may be permanently assigned using its fair value to pay off the debt.

Ann Grand, a general partner, retired. The partnership held a testimonial dinner for her and invited 10 of its largest customers. A week later a notice was placed in various trade journals indicating that Grand had retired and was no longer associated with the partnership in any capacity. After the appropriate public notice of Grand's retirement, which of the following best describes her legal status? A. The release of Grand by the remaining partners and the assumption of all past and future debts of the partnership by them via a hold-harmless clause constitutes a novation. B. Grand has the apparent authority to bind the partnership in contracts she makes with persons unaware of her retirement who have previously dealt with the partnership. C. Grand has no liability to past creditors upon her retirement from the partnership if they all have been informed of her withdrawal and her release from liability. D. Grand has the legal status of a limited partner for the 3 years it takes to pay her the balance of the purchase price of her partnership interest.

Grand has the apparent authority to bind the partnership in contracts she makes with persons unaware of her retirement who have previously dealt with the partnership. Under the RUPA, a dissociated partner continues to be able to bind the partnership for up to 2 years after dissociation if other parties reasonably believe that the dissociated partner is still a partner and do not have knowledge or notice of the dissociation. A statement of dissociation must be filed by the partnership or a dissociated partner to terminate the partner's apparent authority and his or her liability for the partnership's post-dissociation obligations. But after the statement is filed, it is not deemed to provide notice for 90 days.

Grey and Carr entered into a written partnership agreement to operate a hardware store. Their agreement was silent as to the duration of the partnership. Grey wishes to dissolve the partnership. Which of the following is true? A. Unless Carr consents to a dissolution, Grey must apply to a court and obtain a decree ordering the dissolution. B. Grey may dissociate from the partnership and not be liable for any pre- or post-dissociation obligations. C. Grey may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors. D. Grey may dissociate from the partnership at any time.

Grey may dissociate from the partnership at any time. Under the RUPA, dissociation is the legal effect of a partner's ceasing to be associated in carrying on the partnership business. A partner has the power, but not necessarily the right, to dissociate at any time, subject to payment of damages if the dissociation is wrongful. Moreover, dissociation by the partner's giving notice of express will to withdraw is nevertheless a basis for dissolution.

Unless otherwise provided in the certificate of limited partnership, which of the following is true if Grey, one of the limited partners, dies? A. Grey's personal representative will automatically become a substituted limited partner. B. Grey's personal representative will have all the rights of a limited partner for the purpose of settling the estate. C. The partnership will automatically be dissolved. D. Grey's estate will be free from any liabilities incurred by Grey as a limited partner.

Grey's personal representative will have all the rights of a limited partner for the purpose of settling the estate. The death of a limited partner does not result in dissolution of the partnership. The limited partner's estate retains all of his or her rights and liabilities as a limited partner, and the personal representative acts as limited partner for the purpose of settling the estate.

Laura Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell her interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark's withdrawal and Ward's admission, Ward A. Acquired only the right to receive Lark's share of DSJ profits. B. Has the right to participate in DSJ's management. C. Is personally liable for partnership liabilities arising before and after being admitted as a partner. D. Must contribute cash or property to DSJ to be admitted with full partnership rights.

Has the right to participate in DSJ's management. The other partners agreed to admit Ward as a partner. Accordingly, Ward is vested with all partnership rights, duties, and powers, including the right to participate in management.

Fact Pattern: Ted Fein, a partner in the ABC Partnership, wishes to withdraw from the partnership and sell his interest to Ian Gold. All of the other partners in ABC have agreed to admit Gold as a partner and to hold Fein harmless for the past, present, and future liabilities of ABC. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more of the partners. As a result of Fein's withdrawal and Gold's admission to the partnership, Gold A. Is personally liable for partnership liabilities arising before and after his admission as a partner. B. Has the right to participate in the management of ABC. C. Acquired only the right to receive Fein's share of the profits of ABC. D. Must contribute cash or property to ABC to be admitted with the same rights as the other partners.

Has the right to participate in the management of ABC. Without a contrary agreement, a new partner is entitled to all of the rights of a partner described in the RUPA. Gold therefore has the right to participate in ABC's management.

Many states require partnerships to file the partnership name under laws known as fictitious name statutes. These statutes A. Require a proper filing as a condition precedent to the valid creation of a partnership. B. Are designed primarily to provide registration for tax purposes. C. Are designed to clarify the rights and duties of the members of the partnership. D. Have little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance.

Have little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance. Fictitious name statutes have been enacted in most states for the protection of creditors. Registration permits creditors to discover the persons liable for the debts of the enterprise. The creation and operation of a partnership is little affected by the requirement because a partnership need not adopt a name, although use of a name may help to distinguish a partnership action from that of a partner. Moreover, the use of a name does not necessarily indicate the existence of a partnership or that a named person is a member of the firm.

A general partnership must A. Pay federal income tax. B. Have two or more partners. C. Have written articles of partnership. D. Provide for apportionment of liability for partnership debts.

Have two or more partners. A partnership is an association of two or more persons who carry on as co-owners of a business for profit. Absent association by agreement of at least two persons as partners, there is no partnership.

Which of the following is necessary content of the limited partnership certificate? I. The name of the limited partnership II. The address of its office III. The latest date upon which the limited partnership is to dissolve

I, II, and III. I. The name of the limited partnership II. The address of its office III. The latest date upon which the limited partnership is to dissolve The limited partnership certificate must be signed by all general partners and contain the following: (1) the name of the limited partnership, (2) the address of its office, (3) the name and address of its agent for service of process, (4) the name and business address of each general partner, (5) the latest date upon which the limited partnership is to dissolve, and (6) any other matters the general partners determine to include.

Which of the following statement(s) is (are) usually true regarding general partners' liability? I. All general partners are jointly and severally liable for partnership torts. II. All general partners are liable only for those partnership obligations they actually authorized.

I. All general partners are jointly and severally liable for partnership torts. II. All general partners are liable only for those partnership obligations they actually authorized. I only. Partners are jointly and severally liable for the torts committed by another partner who acted within the ordinary course of the partnership business or with the authorization of the other partners. Joint and several liability means that all of the partners are liable, but a third party may hold any partner liable for the entire amount. Because a general partner is an agent of the business, (s)he has apparent authority to bind the partnership to contracts with third parties formed while carrying on the partnership business in the usual way.

Under the Revised Uniform Partnership Act (RUPA), which of the following statements concerning the powers and duties of partners in a general partnership is(are) true? I. Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the scope of the partnership agreement. II. Each partner is subject to joint and several liability on partnership debts and contracts.

I. Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the scope of the partnership agreement. II. Each partner is subject to joint and several liability on partnership debts and contracts. Both I and II. Under the RUPA, a general partnership is primarily an agency relationship. Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the actual or apparent scope of the partnership. Application of this principle of agency law results in joint and several liability of the partners for the partnership's debts and contracts. The RUPA provides that all partners are jointly and severally liable for all obligations of the partnership unless agreed otherwise by the claimant or provided by state law.

Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean may assert the rights to I. Participation in the management of TLC II. Cobb's share of TLC's partnership profits

I. Participation in the management of TLC II. Cobb's share of TLC's partnership profits II Only. Partnership rights may be assigned without the dissolution of the partnership. The assignee is entitled only to the profits the assignor would normally receive. The assignee does not automatically become a partner and would not have the right to participate in managing the business or to inspect the books and records of the partnership. The assigning partner remains a partner with all the duties and other rights of a partner.

Under the Revised Uniform Partnership Act, which of the following statements, if any, are correct regarding the effect of the assignment of an interest in a general partnership? I. The assignee is personally responsible for the assigning partner's share of past and future partnership debts. II. The assignee is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership.

II Only. (The assignee is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership.) A partner's transferable interest consists of a partner's share of partnership profits and losses and the right to receive distributions. Partners may sell or otherwise transfer (assign) their interests to the partnership, another partner, or a third party without loss of the rights and duties of a partner (except the interest transferred). Moreover, unless all the other partners agree to accept the assignee as a new partner, the assignee does not become a partner in the firm. Without partnership status, the assignee has no obligation for partnership debts.

Major Supply, Inc., is seeking a judgment against Les Danforth on the basis of a representation made by Dirk Coleman, in Danforth's presence, that they were in partnership together doing business as the D & C Trading Partnership. Major Supply received an order from Coleman on behalf of D & C and shipped $800 worth of goods to Coleman. Coleman has defaulted on payment of the bill and is insolvent. Danforth denies he is Coleman's partner and that he has any liability for the goods. Insofar as Danforth's liability is concerned, which of the following is true? A. Danforth is not liable if he is not in fact Coleman's partner. B. Because Danforth did not make the statement about being Coleman's partner, he is not liable. C. If Major Supply gave credit in reliance upon the misrepresentation by Coleman, Danforth is a partner by estoppel. D. Because the "partnership" is operating under a fictitious name (the D & C Trading Partnership), a filing is required and Major Supply's failure to ascertain whether there was in fact such a partnership precludes it from recovering.

If Major Supply gave credit in reliance upon the misrepresentation by Coleman, Danforth is a partner by estoppel. A partnership by estoppel may be recognized when an actual partnership does not exist. The duties and liabilities of a partner may be imposed on a nonpartner (a purported partner) who has represented himself or herself as a partner. Moreover, the purported partner is deemed to be an agent of persons who have consented to such a representation. A third party who has reasonably relied on the representation and suffered harm as a result may assert the existence of a partnership. The purported partner and the persons consenting then are prevented (estopped) from denying the existence of a partnership. Thus, even though Danforth and Coleman are not in fact partners, if Major relied on the statement by Coleman made in Danforth's presence and not objected to by Danforth, Danforth is estopped from asserting that no partnership existed. The result is a partnership by estoppel and Danforth is liable to Major.

Stanley is a well-known retired movie personality who purchased a limited partnership interest in Terrific Movie Productions upon its initial syndication. Which of the following is true? A. If Stanley permits his name to be used in connection with the business and is held out as a participant in the management of the venture, he will be liable as a general partner. B. The sale of these limited partnership interests is not subject to SEC registration. C. This limited partnership may be formed with the same informality as a general partnership. D. The general partners are prohibited from also owning limited partnership interests.

If Stanley permits his name to be used in connection with the business and is held out as a participant in the management of the venture, he will be liable as a general partner. A limited partner who permits his or her name to be used in the name of the partnership or in connection with the business is liable to creditors who give credit without actual knowledge that (s)he is not a general partner. Such a limited partner forfeits limited liability. The use of his or her name may lead unsuspecting creditors to believe that (s)he is a general partner with unlimited liability.

Stanley and Martin formed a partnership to engage in the trucking business. Stanley contributed the capital and Martin was to contribute the labor. However, Stanley did not want his name associated with the partnership due to interests in other trucking businesses. Martin was involved in an accident while carrying goods on behalf of the partnership. Which of the following would Stanley not be liable for as a result of the accident? A. Damages caused by the accident. B. Illegal drug activities when the police discovered their business was transporting illegal drugs. C. Rental of the truck when the lessor thought it was dealing with Martin individually. D. Illegal drug activities when Martin was also carrying illegal drugs in the truck unknown to Stanley.

Illegal drug activities when Martin was also carrying illegal drugs in the truck unknown to Stanley. Stanley is an undisclosed and dormant partner. An undisclosed partner is one who is not held out as a partner. A dormant partner is one who does not take an active part in the business. A partner, whether or not (s)he is undisclosed or dormant, is jointly and severally liable for the obligations of the partnership unless otherwise agreed by the claimant or provided by law. However, a partner is not liable for the crimes of another partner that are committed outside the ordinary course of the partnership business and that (s)he did not participate in, assent to, or authorize.

In the absence of a specific provision in a general partnership agreement, partnership losses will be allocated A. Equally among the partners irrespective of the allocation of partnership profits. B. In the same manner as partnership profits. C. In proportion to the partners' capital contributions. D. In proportion to the partners' capital contributions and outstanding loan balances.

In the same manner as partnership profits. Without an agreement to the contrary, the RUPA requires that each partner contribute toward the losses of the partnership according to his or her share in the profits. This rule applies only among the partners. All partners remain fully liable to third parties.

Under the Revised Uniform Partnership Act, which of the following have the right to inspect partnership books and records? A. Employees. B. Former partners. C. Inactive partners. D. Transferees of partners' interests.

Inactive Partners The RUPA states that the partnership must provide a partner with information "reasonably required for the proper exercise of the partner's right and duties," including access to the partnership books and records. No distinction is made between active and inactive partners.

A limited partner A. Is liable for obligations of the partnership to the extent of his or her capital contribution. B. Has the right to vote on partnership operations. C. May freely transfer his or her interest in the partnership and substitute the transferee as a limited partner. D. May not demand the return of his or her contribution.

Is liable for obligations of the partnership to the extent of his or her capital contribution. A limited partner makes a contribution of cash or other property in exchange for an interest and a liability for partnership debts that is restricted to his or her contribution.

Which of the following statements about the form of a general partnership agreement is true? A. It must be in writing if the partnership is to last for longer than 1 year. B. It must be in writing if partnership profits would not be equally divided. C. It must be in writing if any partner contributes more than $500 in capital. D. It could not be oral if the partnership would deal in real estate.

It must be in writing if the partnership is to last for longer than 1 year. Under the Statute of Frauds, an oral agreement to enter into a partnership is valid if its duration is for an indefinite period. However, if the partnership is to continue for a period exceeding 1 year, the Statute of Frauds requires the agreement to be written.

Leslie, Kelly, and Blair wanted to form a business. Which of the following business entities does not require the filing of organization documents with the state? A. Limited partnership. B. Joint venture. C. Limited liability company. D. Subchapter S corporation.

Joint venture. A joint venture is an association to accomplish a specific business purpose. It is easily formed and is often organized for a single transaction. No statute requires a filing to create a joint venture.

Wichita Properties is a limited partnership created in accordance with the provisions of the Uniform Limited Partnership Act. The partners have voted to dissolve and settle the partnership's accounts. Which of the following will be the last to be paid? A. General partners for unpaid distributions. B. Limited partners in respect to capital. C. Limited and general partners in respect to their undistributed profits. D. General partners in respect to capital.

Limited and general partners in respect to their undistributed profits. Under the RULPA, limited and general partners are treated equally. Unless the partnership agreement provides otherwise, assets are distributed as follows: 1. Creditors (including all partner-creditors) 2. Partners for unpaid distributions (i.e., declared but not paid) 3. Partners for the return of their contributions 4. Partners for remaining assets (i.e., undistributed profits) in the proportions in which they share distributions

The XYZ Limited Partnership has two general partners: Smith and Jones. A provision in the partnership agreement allows the removal of a general partner by a majority vote of the limited partners. The limited partners vote to remove Jones as a general partner. Which of the following statements is true? A. The limited partners are now liable to third parties for partnership obligations. B. Limited partners may vote to remove a general partner without losing their status as limited partners. C. By voting to remove a general partner, the limited partners are presumed to exercise control of the business. D. Limited partners may participate in management decisions without limitation if this right is provided for in the limited partnership agreement.

Limited partners may vote to remove a general partner without losing their status as limited partners. A limited partner is not liable to third parties for partnership obligations if the limited partner does not take part in the control of the business. The RULPA lists several activities in which a limited partner may engage without being considered in the control of the business, among them, voting on the removal of a general partner. Excessive involvement in the management of the business may constitute taking part in the control of the business. The result is liability to those parties who have knowledge of the limited partner's participation in control or, if the limited partner is exercising the powers of a general partner, to all third parties.

Which of the following statements is true regarding the apparent authority of a partner to bind the partnership in dealings with third parties? Under the RUPA, the apparent authority A. Must be derived from the express powers and purposes contained in the partnership agreement. B. Will be effectively limited by a formal resolution of the partners of which third parties are unaware. C. May allow a partner to bind the partnership to representations made in connection with the sale of goods. D. Would permit a partner to submit a claim against the partnership to arbitration.

May allow a partner to bind the partnership to representations made in connection with the sale of goods. The RUPA provides that the act of a partner for the apparent purpose of carrying on the partnership business or business of the kind carried on by the partnership binds the partnership unless the person with whom (s)he is dealing knows the acting partner lacks actual authority, for example, because of the partnership's filing of a statement of authority. Courts interpret this language as establishing the apparent authority of partners to take actions that are usual for partnerships. These actions include buying and selling goods and making representations in connection with the sale. The apparent authority of a general partner is substantial.

A valid limited partnership A. Cannot be treated as an "association" for federal income tax purposes. B. May have an unlimited number of partners. C. Is exempt from all Securities and Exchange Commission regulations. D. Must designate in its certificate the name, address, and capital contribution of each general partner and each limited partner.

May have an unlimited number of partners. A valid limited partnership has no maximum limit on the number of partners (limited or general). The only requirement is that it have at least one limited and one general partner. In contrast, S corporations currently have a limit of 100 shareholders.

General partners have a fiduciary relationship with each other. Accordingly, a general partner A. May engage in a business that competes with the partnership if it is operated with his or her own resources. B. May take advantage of a business opportunity within the scope of the partnership enterprise if the partnership agreement will terminate before the benefit will be received. C. Must exercise a degree of care and skill as a professional. D. May not earn a secret profit in dealings with the partnership or partners.

May not earn a secret profit in dealings with the partnership or partners. A general partner is an agent of the partnership and the other partners and thus owes fiduciary duties of loyalty and due care. A partner also has an obligation of good faith and fair dealing. In dealings with the partnership or other partners, a partner may not earn a secret profit. (S)he must account to the partnership and hold as trustee for it any benefit derived in the conduct or winding up of the partnership business or from use of partnership property (including appropriation of a partnership opportunity).

A limited partner A. May not withdraw his or her capital contribution absent sufficient limited-partnership property to pay all general creditors. B. Must not own limited-partnership interests in other competing limited partnerships. C. Is automatically an agent for the partnership with apparent authority to bind the limited partnership in contract. D. Has no liability to creditors even if (s)he takes part in the control of the business as long as (s)he is held out as being a limited partner.

May not withdraw his or her capital contribution absent sufficient limited-partnership property to pay all general creditors. Outside creditors have priority over liabilities to limited partners for the return of their capital contributions. Thus, a limited partner may not withdraw his or her capital contribution if the effect is to impair the creditors' rights.

James Quick was a partner in the Fast, Sure, and Quick Factors partnership. He subsequently died. His will left everything to his wife including a one-third interest in the land and building owned by Fast, Sure, and Quick. Which of the following statements is true? A. Mrs. Quick is a one-third owner of Fast, Sure, and Quick's land and building. B. The real property in question was held by the partnership as a tenancy in common. C. Mrs. Quick automatically becomes the partner of Fast and Sure upon her husband's death. D. Mrs. Quick has the right to receive a settlement for her husband's interest in the partnership.

Mrs. Quick has the right to receive a settlement for her husband's interest in the partnership. Under the RUPA, a partnership interest consists of a share in profits and losses and the right to receive distributions. A partner's death is an event causing dissociation of the partner but not dissolution of the partnership. If the business is not wound up, the partnership must purchase the dissociated partner's interest for a price based on a hypothetical sale of the partnership at the dissociation date. Thus, the decedent's estate (or beneficiaries, presumably including a surviving spouse) is entitled to the value of the decedent's partnership interest but not to any specific partnership property.

Bonanza Real Estate Ventures was formed under a state's version of the Revised Uniform Limited Partnership Act. It has three general partners and 1,100 limited partners. The limited partnership interests were offered to the general public at $5,000 per interest. Julie Kay purchased a limited-partnership interest. As such, she A. Cannot assign her limited-partnership interest to another person without the consent of the general partners. B. Is entitled to interest on her capital contribution. C. Is a fiduciary vis-a-vis the limited partnership and its partners. D. Must include her share of partnership profits in her taxable income even if she withdraws nothing.

Must include her share of partnership profits in her taxable income even if she withdraws nothing. Partnerships are tax-reporting rather than taxpaying entities. The taxable profits of the enterprise pass through to the partners. Accordingly, a limited partner must include his or her share of the partnership profits in taxable income even though no distribution has been received.

Which of the following statements regarding a limited partner is(are) usually true? I. The limited partner is subject to personal liability for partnership debts. II. The limited partner has the right to take part in the control of the partnership.

Niether I nor II. A limited partner's liability for partnership obligations is limited to his or her capital contribution to the business, whereas a general partner has unlimited personal liability for partnership debts. The limited partner also is restricted in the right to control the partnership. (S)he is not allowed to participate in the day-to-day management of the partnership business.

Fil and Breed are 50% partners in F&B Cars, a used-car dealership. F&B maintains an average used-car inventory worth $150,000. On January 5, National Bank obtained a $30,000 judgment against Fil and Fil's child on a loan that Fil had cosigned and on which Fil's child had defaulted. National sued F&B to be allowed to attach $30,000 worth of cars as part of Fil's interest in F&B's inventory. Will National prevail in its suit? A. No, because the judgment was not against the partnership. B. No, because attachment of the cars would dissolve the partnership by operation of law. C. Yes, because National had a valid judgment against Fil. D. Yes, because Fil's interest in the partnership inventory is an asset owned by Fil.

No, because the judgment was not against the partnership. National will not prevail. Fil was not acting as a partner, that is, carrying on in the ordinary course (1) the partnership business or (2) business of the kind carried on by the partnership. Thus, when Fil cosigned the loan, National was not reasonably induced to rely on Fil's apparent authority as a partner-agent of the partnership. Fil therefore did not bind the partnership to the loan agreement. Furthermore, the partnership was not a party to the suit that resulted in a judgment against the partner and the child, and National had no basis for recovery from the partnership. Its remedy as a judgment creditor is against Fil but not specific partnership property. Fil has no interest in specific partnership property that is transferable or can be attached. Instead, the judgment creditor may attach the partner's transferable interest in the partnership by securing a charging order from a proper court. A charging order is a lien on the transferable interest. The court may order foreclosure of the interest at any time. After the order, the debtor partner's interest is sold at a judicial sale. Before the sale, the debtor, the other partners, or the partnership itself may redeem the interest by paying the debt.

Unless otherwise provided for in the partnership agreement, the assignment of a partner's interest in a general partnership will A. Result in the termination of the partnership. B. Not affect the assigning partner's liability to third parties for obligations existing at the time of the assignment. C. Transfer the assigning partner's rights in specific partnership property to the assignee. D. Transfer the assigning partner's right to bind the partnership to contracts to the assignee.

Not affect the assigning partner's liability to third parties for obligations existing at the time of the assignment. The RUPA allows the transfer of a partner's transferable interest without the dissolution of the partnership or dissociation of the partner. The assignee is entitled to receive the assignor's profits, but the assignee does not replace the assigning partner in the partnership. The assigning partner's liability to third parties as a partner also is not affected by the assignment.

Unless the partnership agreement prohibits it, a partner in a general partnership may validly assign rights to Partnership Property: Partnership Distributions:

Partnership Property: No Partnership Distributions: Yes Partnership property is owned by the partnership and not by the individual partners. A partner has no interest in partnership property, which can be assigned or otherwise transferred. A partner may assign his or her interest in the partnership but is not allowed to assign rights in specific partnership property. However, unless the partnership agreement prohibits it, a partner in a general partnership may validly assign rights to his or her share of partnership distributions.

Fact Pattern: Ted Fein, a partner in the ABC Partnership, wishes to withdraw from the partnership and sell his interest to Ian Gold. All of the other partners in ABC have agreed to admit Gold as a partner and to hold Fein harmless for the past, present, and future liabilities of ABC. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more of the partners. The agreement to hold Fein harmless for all past, present, and future liabilities of ABC will A. Prevent partnership creditors from holding Fein personally liable only as to those liabilities of ABC existing at the time of Fein's withdrawal. B. Prevent partnership creditors from holding Fein personally liable for the past, present, and future liabilities of ABC. C. Not affect the rights of partnership creditors to hold Fein personally liable for those liabilities of ABC existing at the time of his withdrawal. D. Permit Fein to recover from the other partners only amounts he has paid in excess of his proportionate share.

Not affect the rights of partnership creditors to hold Fein personally liable for those liabilities of ABC existing at the time of his withdrawal. The agreement of the other partners to release Fein from liability merely limits his personal liability to those partners. They cannot relieve him from liability to third parties, such as partnership creditors, for those liabilities existing at the time of Fein's withdrawal.

Which of the following will result in a dissolution of a partnership under the RUPA? A. The bankruptcy of a partner as long as the partnership itself remains solvent. B. The death of a partner as long as his or her will provides that his executor shall become a partner in his or her place. C. Notice to a partnership at will of a partner's express will to withdraw. D. The assignment by a partner of his or her entire partnership interest.

Notice to a partnership at will of a partner's express will to withdraw. Under the RUPA, dissociation of the partner and dissolution of a partnership at will result from a partner's notice to the partnership of his or her express will to withdraw. A wrongful dissociation results in liability to the other partners for damages.

If no provisions are made in an agreement, a general partnership allocates profits and losses based on the A. Value of actual contributions made by each partner. B. Number of partners. C. Number of hours each partner worked in the partnership during the year. D. Number of years each partner belonged to the partnership.

Number of Partners Under the Revised Uniform Partnership Act, the partnership agreement determines the allocation of partnership profits and losses among partners. Without an agreement, the RUPA allocates profits equally. Moreover, each partner must contribute toward losses in the same proportion (s)he is entitled to share in profits.

Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership or its purposes. Which of the following statements is true? A. Park may dissociate from the partnership at any time. B. Unless Graham consents to a dissolution, Park must apply to a court and obtain a decree ordering the dissolution. C. Park may dissolve the partnership by any reasonable means. D. Park may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors.

Park may dissociate from the partnership at any time. A partner has the power (if not the right) to dissociate at any time. The partnership may not be dissolved by dissociation of a partner unless it is by notice of the express will of that partner to withdraw. A statement of dissociation may be filed by the partnership or dissociating partner. Within 90 days after filing, notice of dissociation terminates the partner's apparent authority and post-dissociation obligations.

Joe Perone was a member of Caddy, Shack, & Perone, a general trading partnership. He died and the partnership is being liquidated in a bankruptcy proceeding, but Perone's estate is substantial. The creditors of the partnership are seeking to collect on their claims from Perone's estate. Which of the following statements is true insofar as their claims are concerned? A. The death of Perone caused a dissolution of the firm, thereby freeing his estate from personal liability. B. Partnership creditors and Perone's personal creditors are on an equal footing regarding the assets of Perone's estate. C. The creditors must first proceed against the remaining partners before Perone's estate can be held liable for the partnership's debts. D. The liability of Perone's estate cannot exceed his capital contribution plus that percentage of the deficit attributable to his capital contribution.

Partnership creditors and Perone's personal creditors are on an equal footing regarding the assets of Perone's estate. The partnership creditors have first claim to the assets of a bankrupt partnership. To the extent their claims are not satisfied, they are entitled to share pro rata with the general unsecured creditors of individual partners in the partners' personal assets.

X, Y, and Z have capital balances of $30,000, $15,000, and $5,000, respectively, in the XYZ Partnership. The general partnership agreement is silent as to the manner in which partnership losses are to be allocated but does provide that partnership profits are to be allocated as follows: 40% to X, 25% to Y, and 35% to Z. The partners have decided to dissolve and liquidate the partnership. After paying all creditors, the amount available for distribution will be $20,000. X, Y, and Z are individually solvent. Z will A. Receive $7,000. B. Receive $12,000. C. Personally have to contribute an additional $5,500. D. Personally have to contribute an additional $5,000.

Personally have to contribute an additional $5,500. Upon termination, a partnership must first pay all creditors, including partners who are creditors, and then distribute the remaining assets to the partners. In this case, $20,000 is available for distribution. However, the total of capital contributions is $50,000, and a $30,000 ($50,000 capital contributions - $20,000 available for distribution) loss must be allocated among the partners. When the partnership agreement does not specify otherwise, losses are allocated in the same ratio as profits. Thus, Z is properly allocated 35% of the loss, or $10,500 ($30,000 × 35%). Z's capital contribution of $5,000 is less than Z's share of the loss. Thus, Z must contribute an additional $5,500 to the partnership.

Lewis, Clark, and Beal entered into a written agreement to form a partnership. The agreement required that the partners make the following capital contributions: Lewis, $40,000; Clark, $30,000; and Beal, $10,000. It was also agreed that, in the event the partnership experienced losses in excess of available capital, Beal would contribute additional capital to the extent of the losses. The partnership agreement was otherwise silent about division of profits and losses. Which of the following statements is true? A. Profits are to be divided among the partners in proportion to their relative capital contributions. B. Profits are to be divided equally among the partners. C. Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital. D. Beal's obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.

Profits are to be divided equally among the partners. Unless the partnership agreement states otherwise, profits and losses are shared equally. Also, unless agreed otherwise, losses are shared in the same proportion as profits. All partners are jointly and severally liable to firm creditors, and this liability cannot be changed by the partnership agreement. However, an indemnification agreement is valid among the partners.

Jackie Daniels, Jess Beal, and Sid Wade agreed to form the DBW Partnership to engage in the import-export business. They had been life-long friends and had engaged in numerous business dealings with each other. It was orally agreed that Daniels would contribute $20,000, Beal $15,000 and Wade $5,000. It was also orally agreed that in the event the venture proved to be a financial disaster all losses above the amounts of capital contributed would be assumed by Daniels and that she would hold her fellow partners harmless from any additional amounts lost. The partnership was consummated with a handshake and the contribution of the agreed-upon capital by the partners. There were no other express agreements. Under these circumstances, which of the following is true? A. Profits are to be divided in accordance with the relative capital contributions of each partner. B. Profits are to be divided equally. C. The partnership is a nullity because the agreement is not contained in a signed writing. D. Profits are to be shared in accordance with the relative time each devotes to partnership business during the year.

Profits are to be divided equally. Unless the partnership agreement states otherwise, profits and losses are shared equally. Also, unless agreed otherwise, losses are shared in the same proportion as profits. All partners are jointly and severally liable to firm creditors, and this liability cannot be changed by the partnership agreement. However, an indemnification agreement is valid among the partners.

When a party deals with a partner who lacks actual or apparent authority, a general partnership will be bound by the resulting contract if the other partners Ratify the Contract: Amend the Partnership Agreement:

Ratify the Contract: Yes Amend the Partnership Agreement: No A general partnership is bound on a contract made by a partner acting within the scope of his or her actual authority (either express or implied) or by the apparent authority a third party reasonably believes an agent has. A partnership also may be liable on an unauthorized contract by ratification. Ratification is approval after the fact of an unauthorized act and binds the partnership as if the partner had been initially authorized. Ratification may be express or implied from conduct of the principal. However, amending the partnership agreement by itself does not imply ratification.

The formation of a sole proprietorship A. Requires registration with the federal government's Small Business Administration. B. Requires a formal "doing business as" filing under state law if the proprietor plans to do business under a fictitious name. C. Requires formal registration in each state the proprietor plans to do business in. D. Is not as easy and inexpensive to form as an S corporation.

Requires a formal "doing business as" filing under state law if the proprietor plans to do business under a fictitious name. A proprietor doing business under a fictitious name is usually required to make a d/b/a or "doing business as" filing under state law. Otherwise, the formation of a sole proprietorship is subject to few legal requirements, such as local zoning and licensing. In this respect, the sole proprietorship is the easiest and least expensive to create of all the business organizations.

A limited partner's capital contribution to the limited partnership A. Results in the limited partner having an intangible personal property right. B. Can be withdrawn at the limited partner's option at any time prior to the filing of a petition in bankruptcy against the limited partnership. C. Can only consist of cash or marketable securities. D. Must be indicated in the limited partnership's certificate.

Results in the limited partner having an intangible personal property right. The limited partner's interest is an investment in the entity as a whole. The interest is personal property. It is an intangible because the limited partner has no right to specific partnership property.

Billie Donovan, a partner of Monroe, Lincoln, and Washington, is considering selling or pledging all or part of her interest in the partnership. The partnership agreement is silent on the matter. Donovan may A. Sell part but not all of her partnership interest. B. Sell or pledge her entire partnership interest without causing a dissolution. C. Pledge her partnership interest, but only with the consent of the other partners. D. Sell her entire partnership interest and confer partner status upon the purchaser.

Sell or pledge her entire partnership interest without causing a dissolution. Under the RUPA, a transfer of a partner's transferable interest for security purposes (e.g., a pledge) causes neither dissociation of the partner nor dissolution of the partnership. Furthermore, a unanimous vote of the other partners is required to expel a partner because of a sale or other transfer (other than for security purposes) of all or substantially all of the partner's transferable interest. Expulsion on these grounds is a basis for dissociation of the partner, not dissolution of the partnership.

Under the RUPA, unless otherwise provided in a general partnership agreement, which of the following statements is true when a partner dies? The Deceased Partner's Executor Would Automatically Become a Partner: The Deceased Partner's Estate Would Be Free from Any Partnership Liability: The Partnership Would Be Dissolved Automatically:

The Deceased Partner's Executor Would Automatically Become a Partner: No The Deceased Partner's Estate Would Be Free from Any Partnership Liability: No The Partnership Would Be Dissolved Automatically: No Under the RUPA, the death of a partner results in dissociation, not automatic dissolution. In many instances, dissociation results in a buyout of the dissociated partner's interest and a continuation of the partnership rather than a winding up. The partnership interest becomes part of the deceased partner's estate. However, neither the executor nor the successor to the partnership interest automatically becomes a partner unless the other partners agree. The estate is responsible for the partner's allocated share of any partnership liabilities.

When the Revised Uniform Partnership Act applies and there is no general partnership agreement, which of the following events, if any, occur(s) when a partner dies? The Partner is Disassociated: The Diceased Partner's Estate Is Free from Any Partnership Liability:

The Partner is Disassociated: Yes The Diceased Partner's Estate Is Free from Any Partnership Liability: No Under the RUPA, the death of a partner results in dissociation of the partner but not automatic dissolution of the partnership. Other events (e.g., incapacity, insolvency, or expulsion by a unanimous vote of the other partners or under the terms of the partnership agreement) also cause dissociation. However, the only form of dissociation that dissolves the partnership is dissociation by notice of an express will to withdraw. When a partner dies, the partnership interest becomes part of the deceased partner's estate. Moreover, the estate is responsible for the partner's allocated share of any partnership liabilities. These liabilities may include post-dissociation contracts entered into with third parties who reasonably believe that the dissociated person is still a partner.

Rivers and Lee want to form a partnership. For the partnership agreement to be enforceable, it must be in writing if A. Rivers and Lee reside in different states. B. The agreement cannot be completed within 1 year from the date of its formation. C. Either Rivers or Lee is to contribute $500 or more in capital. D. The partnership intends to buy and sell real estate.

The agreement cannot be completed within 1 year from the date of its formation. Most oral agreements to enter into a partnership are valid if the partnership agreement is for a period in excess of 1 year, however, the majority of states require that the partnership agreement be in writing to be enforceable. This is consistent with the "year clause" of the statute of frauds. If the statute of frauds is not complied with, a partnership at will results.

Which of the following statements best describes the effect of the assignment of an interest in a general partnership? A. The assignee becomes a partner. B. The assignee is responsible for a proportionate share of past and future partnership debts. C. The assignment automatically dissolves the partnership. D. The assignment transfers the assignor's interest in partnership profits and losses and the right to distributions.

The assignment transfers the assignor's interest in partnership profits and losses and the right to distributions. A partner's transferable interest in the partnership consists of the partner's share of profits and losses and the right to distributions. It may be assigned without the dissolution of the partnership. The assignee does not automatically become a partner or have the right to participate in managing the business or to inspect the books and records of the partnership.

Which of the following is not a characteristic of both a sole proprietorship and a general partnership? A. Equity capital may not be raised by selling shares of the business. B. The business's profits and losses are passed through to the owner(s). C. The death of an owner causes the termination of the business. D. A "doing business as" filing is usually required if the owner(s) will conduct business under a fictitious name.

The death of an owner causes the termination of the business. In a sole proprietorship, the death of the proprietor causes the automatic termination of the business. However, the death of a general partner results in dissociation, not the termination of the partnership.

Berry, Drake, and Flanigan are partners in a general partnership. The partners made capital contributions as follows: Berry, $150,000; Drake, $100,000; and Flanigan, $50,000. Drake made a loan of $50,000 to the partnership. The partnership agreement specifies that Flanigan will receive a 50% share of profits and that Drake and Berry each will receive a 25% share of profits. Under the Revised Uniform Partnership Act and in the absence of any partnership agreement to the contrary, which of the following statements is correct regarding the sharing of losses? A. The partners will share equally in any partnership losses. B. The partners will share in losses on a pro rata basis according to the capital contributions. C. The partners will share in losses on a pro rata basis according to the capital contributions and loans made to the partnership. D. The partners will share in losses according to the allocation of profits specified in the partnership agreement.

The partners will share in losses according to the allocation of profits specified in the partnership agreement. Unless the partners agree otherwise, the RUPA provides for equal sharing of the partnership's profits. Also, unless otherwise agreed, each partner must contribute in proportion to his or her share of the profits toward any losses of the partnership. Thus, Flanigan, Drake, and Berry are responsible for 50%, 25%, and 25%, respectively, of the partnership's losses.

Three independent sole proprietors decided to pool their resources and form a partnership. The business assets and liabilities of each were transferred to the partnership. The partnership commenced business on September 1, but the parties did not execute a formal partnership agreement until October 15. Which of the following is true? A. The existing creditors must consent to the transfer of the individual business assets to the partnership. B. The partnership began its existence on September 1. C. If the partnership's duration is indefinite, the partnership agreement must be in writing and signed. D. In the absence of a partnership agreement specifically covering division of losses among the partners, they will be deemed to share them in accordance with their capital contributions.

The partnership began its existence on September 1. A general partnership exists when two or more persons associate to carry on a business as co-owners for profit. No formalities need to be observed, and the partnership may exist even though the persons involved have not so intended. This partnership came into existence upon the commencement of carrying on a business, not the execution of a formal agreement.

Buster and Rover formed a partnership to invest in real estate. However, Buster also decided to sell TVs on the side. Buster went to Harold, a wholesaler, and purchased 20 TVs on credit in the name of the partnership. Harold knew the partnership was formed for the purpose of investing in real estate because he had been solicited to be one of the partners. If Buster does not pay for the TVs, A. The partnership is liable because Buster had apparent authority to sign for the TVs as a partner. B. As a partner, Rover is personally liable to Harold. C. Harold can seize Buster's partnership interest and collect his or her profits. D. The partnership is not liable because it is not a trading partnership.

The partnership is not liable because it is not a trading partnership. The partner of a trading partnership (one that normally buys and sells goods) has apparent authority to contract in the name of the partnership for the purchase of goods. However, a partner of a nontrading partnership does not have such apparent authority if the third party specifically knows the nature of the partnership. Harold has no reason to believe the goods are being purchased for partnership business, i.e., for resale.

A parent and children currently own and operate a farm as equal partners. Under the Revised Uniform Partnership Act, what effect would the death of the parent have on the partnership? A. The estate of the deceased partner automatically becomes a partner. B. The surviving partners could continue the partnership. C. The partnership would be dissolved and wound up. D. A partnership agreement could not have governed the continuation of the partnership.

The surviving partners could continue the partnership. The death of a partner results in the dissociation of that partner from the partnership, not dissolution of the partnership. The remaining partners may choose to continue the partnership. The estate still has an interest in the partnership, but the beneficiaries of the estate do not become partners without the unanimous consent of the existing partners.

Which of the following rights would a limited partner not be entitled to assert? A. To have a formal accounting of partnership affairs whenever the circumstances render it just and reasonable. B. To have the same rights as a general partner to a dissolution and winding up of the partnership. C. To have reasonable access to the partnership books and to inspect and copy them. D. To be elected as a general partner by a majority vote of the limited partners in number and amount

To be elected as a general partner by a majority vote of the limited partners in number and amount. A new general partner may be admitted to a limited partnership only with the specific written consent of each and every partner (both limited and general). The limited partners therefore do not have the power to admit new general partners, and unanimous consent is needed unless the partnership agreement provides otherwise.

Generally, under the Revised Uniform Partnership Act, a partnership has which of the following characteristics? Unlimited Duration: Obligation for Payment of Federal Income Tax:

Unlimited Duration: No Obligation for Payment of Federal Income Tax: No A partnership is an association of two or more persons to carry on a business as co-owners for profit. For federal income tax purposes, it is a flow-through entity. Thus, partnership income (loss) is reported on the owners' tax returns, but the partnership itself does not pay taxes. Moreover, one of the distinguishing characteristics of the partnership form of business is its lack of continuity of life.

The apparent authority of a partner to bind the partnership in dealing with third parties A. Will be effectively limited by a formal resolution of the partners of which third parties are unaware. B. Will be effectively limited by the filing of a statement of partnership authority. C. Would permit a partner to submit a claim against the partnership to arbitration. D. Must be derived from the express powers and purposes contained in the partnership agreement.

Will be effectively limited by the filing of a statement of partnership authority. Each partner in a general partnership is an agent of the partnership. The partners may not limit partnership liability to third parties by agreement among the partners alone. But apparent authority is effectively limited to the extent a third party knows of limitations imposed on a partner's authority. The RUPA provides for filing of a statement of authority that may give notice of limitations on the authority of a partner.

The partnership of Joe Baker, Art Green, and Guy Madison is insolvent. The partnership's liabilities exceed its assets by $123,000. The liabilities include a $25,000 loan from Madison. Green is personally insolvent. His personal liabilities exceed his personal assets by $13,500. Green has filed a voluntary petition in bankruptcy. Under these circumstances, partnership creditors A. Must proceed against the partnership and all the general partners in one lawsuit so that losses may be shared equitably among the partners. B. Rank first in payment and all (including Madison) will share proportionately in the partnership assets to be distributed. C. Will have the first claim to partnership property to the exclusion of the personal creditors of Green. D. Do not have the right to share pro rata with Green's personal creditors in Green's personal assets.

Will have the first claim to partnership property to the exclusion of the personal creditors of Green. The creditors of the partnership have first priority in the distribution of the assets of the partnership. The personal creditors of Green can reach Green's transferable interest (not specific partnership assets) only through a charging order.

Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves, and Gage sought to enforce the contract. Gage will A. Lose, because Locke's action was not authorized by the partnership agreement. B. Lose, because Locke was not an agent of the partnership. C. Win, because Locke had express authority to bind the partnership. D. Win, because Locke had apparent authority to bind the partnership.

Win, because Locke had apparent authority to bind the partnership. A general partner is an agent of the partnership. Agents may have express, implied, and apparent authority. Apparent authority is authority that a reasonable third person believes the agent to have. Contracting for delivery of stoves is within the scope of ordinary business of a partnership in a kitchen equipment business. It is therefore within the scope of a general partner's apparent authority. Limitations imposed on an agent by the principal are ineffective as to third persons who have relied on the agent's apparent authority. But the principal may file a statement of authority that gives constructive notice of any limitations on the authority of a partner.

Wind, who has been a partner in the PLW general partnership for 4 years, decides to withdraw from the partnership despite a written partnership agreement that states, "No partner may withdraw for a period of 5 years." Under the Revised Uniform Partnership Act (RUPA), what is the result of Wind's withdrawal? A. Wind's withdrawal causes a dissolution of the partnership by operation of law. B. Wind's withdrawal has no bearing on the continued operation of the partnership by the remaining partners. C. Wind's withdrawal is not effective until Wind obtains a court-ordered decree of dissolution. D. Wind's withdrawal causes dissociation from the partnership despite being in violation of the partnership agreement.

Wind's withdrawal causes dissociation from the partnership despite being in violation of the partnership agreement. Under the RUPA, a partnership is considered an entity substantially separate from its partners. A partner has the power (if not the right) to dissociate at any time. However, if the partner wrongfully dissociates from the partnership, (s)he is liable for any resulting damages to the other partners. After dissociation, the business either continues after purchase of the dissociated partner's interest or dissolution begins.

Under the Revised Uniform Limited Partnership Act and in the absence of a contrary agreement by the partners, which of the following events is most likely to dissolve a limited partnership? A. A majority vote in favor by the partners. B. A two-thirds vote in favor by the partners. C. A withdrawal of a majority of the limited partners. D. Withdrawal of the only general partner.

Withdrawal of the only general partner. A limited partnership can be dissolved upon any of the following events: (1) the time or event specified in the limited partnership agreement occurs; (2) all the partners agree, in writing, to dissolve; (3) an event of withdrawal of the only general partner occurs; or (4) the limited partnership is dissolved by court order.