Unit 10

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

False

Debbie, the manager of a large furniture store, receives a bonus each year equal to 2% of the business' net profits. Under RUPA, this is conclusive evidence that Debbie has a partnership interest in the business. True False

False

If a partner assigns his or her interest in a partnership to a creditor, the assignee steps into the shoes of the partner and becomes entitled to participate in the management of the business. True False

False

If a personal creditor of Partner A wants to attach A's partnership interest in satisfaction of the debt, he would do so through a marshalling order. True False

False

In a closely held corporation, the shareholders will be personally liable for torts committed by employees of the corporation if committed while carrying out their employee duties. True False

False

In a partnership for a term of years, each partner has both the power and the right to withdraw from the partnership at any time. True False

False

Partners may use partnership property for both partnership and personal reasons. True False

False

The partnership must pay interest each year on the capital contributions of the partners. True False

False

Vic and Thom bought an antique Corvette at auction with the intent of restoring it and selling it for a profit, which they will share equally. Vic and Thom have formed a professional association. True False

False

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

True

Unless agreed to otherwise, partners are not entitled to compensation for work done to further the interests of the partnership. True False

True

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

True

Which of the following statements is true about a partnership name? The name is an asset of the partnership that may be sold or assigned. The name must include the word "company" in it. The partnership must comply with the state's assume name provisions. Both a and c

Both a and c

The business entity that consists in an association of two or more persons to carry on as co-owners a business for profit is an__________. Limited partnership Limited liability company Partnership Professional association

Partnership

A partnership whose primary business purpose is the buying and selling of goods is a ________partnership. Professional Entrepreneurial Trading Non-trading

Trading

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

True

May is one of three limited partners in a limited partnership. Each limited partner made a capital contribution of $50,000. Assume there is a judgment against the partnership for $300,000 and that both the partnership and the general partner are insolvent. What is the maximum amount that May will have to pay on the judgment? 0: May is a limited partner so has no liability for the debts of the partnership under any circumstances. $50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that. $100,000: May will be liable for up to 1/3 of the judgment since there are three limited partners. $300,000: As a limited partner May has joint and several liability for the debts of the partnership so she could be personally liable for the full amount.

$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.

The maximum number of shareholders a Subchapter S corporation may have is 25 35 100 1000

100

The AMJ Partnership has 3 partners: Amy, who made a 60,000 capital contribution; May, who made a 20,000 capital contribution; and June, whose capital contribution was 10,000. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed? 60,000 to Amy; 20,000 to May; 10,00 to June 30,000 each to Amy, May and June 45,000 to Amy; 30,000 to May; 15,000 to June The partners will have to determine the distribution by a 23 partnership vote.

30,000 each to Amy, May and June

Which of the following is NOT one of the recognized disadvantages of doing business as a corporation? A corporation must comply with a great number of state and federal regulations. Corporate profits are subject to double taxation. A corporation must qualify to do business in each state in which it engages in business activities. A corporation can be in existence for a maximum of 99 years.

A corporation can be in existence for a maximum of 99 years.

Jay, who is a partner in an accounting firm, is being sued for malpractice by a client. If the jury finds for the client, which of the following parties will have liability on the judgment? The partnership as an entity Jay individually Each of the other partners individually All of the above have liability on the judgment.

All of the above have liability on the judgment.

Which of the following would bring about the dissolution of the partnership? The time the partnership is to last, as stated in the partnership agreement, has expired All of the partners agree to end the partnership One of the partners dies. All of the above would bring about the dissolution of a partnership

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

The written agreement between two or more persons that creates a partnership and sets for the rights and duties of each partner is the_____________. Articles of incorporation Articles of partnership By laws charter

Articles of partnership

Bill is a limited partner in K&L Limited Partnership. Which of the following statements about his partnership interests is false? Bill made a capital contribution to K&L Bill has a right to share in K&L profits. Bill must share in K&L losses up to his capital contribution. Bill has a right to make management decisions for K&L.

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

A partnership that fails to comply with a state's assumed name statute Will be given a trade name by the attorney general Will not be able to use the courts of the state to sue its debtors May exposed the partners to criminal liability Both b and c

Both b and c

The capital contribution of a partner may consist in all of the following except Patent rights Cash Business experience Real property`

Business experience

The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order. Charging Marshaling Accounting Collection

Charging

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

False

In a limited partnership, the _________partner has unlimited personal liability for the debts of the partnership; the ____________partner is liable only to the extent of his or her capital contribution. Limited-----------------general General----------------limited Senior------------------limited General----------------junior

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

Which of the following issues do not require a unanimous vote of the partners? Admission of a new partner Confession of a judgment against the partnership Disposal of the good will of the business Hiring an office manager for 40 hours a week.

Hiring an office manager for 40 hours a week.

Which of the following statements about a joint venture is true? It can be the plaintiff in a lawsuit without involving the individuals who form the joint venture. It can be the defendant in a lawsuit without subjecting the individuals who form the joint venture to liability. It is limited by statute to thirty-five members. Individuals form it to conduct a single, or very limited, business activity.

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

Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? Joint venture Limited partnership Professional association General partnership

Joint venture

Partnership agreements often fund the purchase of a deceased partners' partnership interests with Life insurance policies Distributions of retained earnings Levies on partnership interests Partner advances

Life insurance policies

Which of the following statements about the limited partner in a limited partnership is false? Limited partners may participate fully in the management of the partnership. There must be at least one limited partner. Limited partners must approve any changes to the partnership agreement. Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.

Limited partners may participate fully in the management of the partnership.

Megan has joined Alliance Partners, making a 50,000 capital contribution. Alliance has been in business for 10 years and Megan is worried about her liability for pre-existing debts. Which statement best describes her liability for the debts Alliance had when she joined the partnership? Megan has unlimited personal liability and her entire capital contribution may be used to satisfy the debts. Megan has unlimited personal liability, but her capital contribution cannot be used because it is new money. Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them. Megan has no personal liability for the debts and her capital contribution cannot be used to satisfy old debts.

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

Peter, Paul and John, who were licensed pharmacists, formed a partnership to purchase and run a small drugstore chain. Each held a 13 interest in the partnership. When Paul died his wife Ellen began receiving annuity payments equal to 13 of the partnership's net profits. The payments were to last for 3 years. Ellen is also a licensed pharmacist and perfectly capable of performing all the duties that Peter, Paul and John performed. She claims that under partnership law both her right to receive a share of net profits and her expertise in the field are prima facie evidence that she is a partner in the firm. Is Ellen correct? No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership. No, only management rights are prima facie evidence of a partnership Yes, sharing in net profits for whatever reason is prima facie evidence of a partnership. Yes, sharing in net profits and having the same business qualifications as the other partners together create prima facie evidence of a partnership.

No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership.

Allfam is a closely held family corporation, many of whose shareholders are employees of the corporation. In an attempt to reduce its taxes, Allfam paid its shareholder-employees enormous salaries and deducted the salaries as a corporate expense. Is Allfam permitted to do this? Yes, this is a legitimate way for closely held corporations to reduce their taxes. No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends. No, the shareholder-employees will have do return the excess portion of their salaries to the corporation. No, the IRS will disallow the deductions for this year, but will allow the corporation to treat them as carry-forward losses for next year.

No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.

Jim and Sid are partners in Widget Manufacturing. Jim read a letter from one of Widget's buyers asking for adequate assurances that Widget would be able to meet an upcoming contractual obligation. The demand was proper and, under Article 2, the buyer could treat the contract as breached if Widget did not respond to the demand within 3 months. Jim forgot to tell Sid about the demand and did not respond to it himself. Widget is now being sued by Buyer for 4,000 in damages for breach of contract. Sid contends that the partnership is not liable because only one partner was aware of the demand. Is Sid correct? Yes, as an equal owner of the business Sid was entitled to equal notice. No, Sid did not receive the notice because of his own negligence in attending to partnership correspondence. No, the partnership is liable under the doctrine of respondeat superior No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.

No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.

A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership. Professional Entrepreneurial Trading Non-trading

Non-trading

By statute, a limited partnership must have a minimum of ___________general partners. one two four five

One

Which of the following is not an advantage of a general partnership? Partners have limited liability for the debts of the partnership The costs to form a partnership are minimal. All partners have equal management rights. All of the above are advantages of a general partnership.

Partners have limited liability for the debts of the partnership

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

Secret

Another name for a tax option corporation is a Limited liability Company Professional corporation Subchapter S corporation Joint venture

Subchapter S corporation

What is another name for a Subchapter S Corporation? Hybrid Limited Partnership Tax option corporation Limited Liability Company Professional Corporation

Tax option corporation

Which of the following statements about LLC's is false? LLC's are a relatively new form of business organization. There is an extensive body of law based on court decisions governing LLC's. Shareholders have no personal liability for the debts of the LLC. The LLC is not a taxable entity.

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

A dormant partner is one who does not participate in the management of the business and whose identity is not known to third parties. True False

True

A limited partnership must have at least one general partner and one limited partner. True False

True

A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership. True False

True

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

True

A partnership maybe created by an express agreement between the parties or it may be implied from their conduct. True False

True

A person may become a partner without making a capital contribution. True False

True

A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income. True False

True

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

True

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

True

Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss. True False

True

Members of professional associations and professional corporations are eligible under the Tax Code to participate in pension and profit-sharing plans. True False

True

One partner has the ability to veto the admission of a new partner into the business. True False

True

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

True

Partnerships typically buy life insurance policies on each partner in order to fund the required purchase of the partner's interest in the partnership when the partner dies. True False

True

Professional corporations are business entities organized under state law. True False

True

Shareholders of a corporation may also be employees of that corporation. True False

True

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

True

Subchapter S corporations may have a maximum of 100 shareholders. True False

True

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

True

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

True

Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? Doctors have no personal liability for medical malpractice suits. Because they are also owners of the corporation, doctors have no protection from discrimination based on age. The professional corporation can have no more than 10 owner-employee doctors. are eligible to participate in tax advantaged pension plans

are eligible to participate in tax advantaged pension plans.

Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? Doctors have no personal liability for medical malpractice suits. Because they are also owners of the corporation, doctors have no protection from discrimination based on age. The professional corporation can have no more than 10 owner-employee doctors. are eligible to participate in tax advantaged pension plans.

are eligible to participate in tax advantaged pension plans.