BUL Unit 10 Quiz
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.
Jim and Fred had been equal partners in J & F Industries for 20 years. Jim has died and Fred is now in the process of winding up the partnership. Which of the following statements about the winding up process is false? -Fred is entitled to compensation for winding up the business. -Jim's estate is entitled to an accounting -Jim's estate is entitled to participate in the winding up process. -If there are not enough assets in the partnership to pay off all the debts, Jim's estate will be liable for one half of the losses.
-Jim's estate is entitled to participate in the winding up process.
Nelson and Jack are both avid sailors. When a sailing acquaintance put his older, but still highly desirable, boat up for sale, Nelson and Jack agreed to pool their resources to buy and fix up the boat, then sell it and split the profits. This is an example of an______ -General partnership -Limited partnership -Joint venture -Proprietorship
-Joint venture
Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? -Joint venture -Limited partnership -Professional association -General partnership
-Joint venture
Which of the following is an informal association of two or more persons who agree to engage as co-owners in a single business transaction? -Joint venture -General partnership -Trading group -Limited partnership
-Joint venture
If a business has the power to own property, enter into contracts, and sue others in court, it is said to have -Legal capacity -legal standing -legal authority -corporate authority
-Legal capacity
Which of the following statements about the limited partner in a limited partnership is false? -Limited partners may participate fully in the management of the partnership. -There must be at least one limited partner. -Limited partners must approve any changes to the partnership agreement. -Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.
-Limited partners may participate fully in the management of the partnership.
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.
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.
Which of the following is the order in which partnership assets will be distributed upon termination of the partnership? -Outside-creditors, partner-creditors, undistributed profits, capital contributions. -Capital contributions, outside-creditors, partner-creditors, undistributed profits. -Partner-creditors, outside-creditors, undistributed profits, capital contributions -Outside-creditors, partner-creditors, capital contributions, undistributed profits.
-Outside-creditors, partner-creditors, capital contributions, undistributed profits.
Which of the following statements about the taxation of corporations is false? -Premiums paid for employee health insurance plans are fully deductible. -Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule. -Salaries paid to employees are deductible expenses for the corporation. -Most states impose license fees or franchise taxes on corporations doing business in the state.
-Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.
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
A partner who does not participate in the management of the partnership is a ________partner. -Silent -Dormant -Secret -Junior
-Silent
Another name for a tax option corporation is a -Limited liability Company -Professional corporation -Subchapter S corporation -Joint venture
-Subchapter S corporation
What is another name for a Subchapter S Corporation? -Hybrid Limited Partnership -Tax option corporation -Limited Liability Company -Professional Corporation
-Tax option corporation
Partners hold title to partnership property as -Joint tenants -Tenants in common -Tenants in partnership -Tenants by the entireties
-Tenants in partnership
Which of the following is not normally included in the Partnership Agreement? -The name of the partnership. -The capital contribution of each partner. -A buy and sell agreement -The daily work schedule for each partner.
-The daily work schedule for each partner.
Which of the following statements about proprietorships is true? -Proprietorships are taxable entities apart from the owners. -A business can have up to thirty-five owners and still be a proprietorship. -A proprietorship cannot generate more than 10 million in proceeds per tax year. -The owner of a proprietorship is personally liable for all the debts of the proprietorship.
-The owner of a proprietorship is personally liable for all the debts of the proprietorship.
Which of the following is not a right of a partner? -The right to participate in the management of the business. -The right to draw yearly interest on his or her capital contribution -The right to inspect the partnership books and records. -The right to sue for an accounting if another partner has taken a secret profit.
-The right to draw yearly interest on his or her capital contribution
Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false? -They will be protected from suits for medical malpractice. -They will be eligible for a tax-advantaged pension plan. -Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name. -Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of the professional corporation.
-They will be protected from suits for medical malpractice.
A 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 partnership maybe created by an express agreement between the parties or it may be implied from their conduct. -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
Partner A defrauded a client of the partnership. Partners B and C are jointly and severally liable with A to the client, even though they were unaware of the fraud. -True -False
-True
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
Under RUPA, a partnership may take title to real property as a tenancy in partnership. -True -False
-True
Usury laws do not apply to corporations when they borrow money. -True -False
-True
When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called __________________. -Dissolution -Winding up -Marshaling of assets -Termination
-Winding up
Which business entity is defined as "an association of two or more owners who carry on as co-owners a business for profit?" -Proprietorship -General partnership -Subchapter S corporation -Limited Liability Company
-General partnership
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.
Subchapter S corporations are limited to _________shareholders. -10 -35 -100 -There is no limit to the number of shareholders in a Subchapter S corporation.
-100
Which of the following is not required to create a partnership? -A written agreement between the parties. -Two or more persons -An understanding to share profits and losses -A common interest and intent to conduct business activities together.
-A written agreement between the parties.
Which of the following decisions would require a unanimous vote of the partners? -Hiring an accountant to prepare the partnership information return for federal taxes. -Buying materials from a new supplier. -Having the parking lot repaved and installing new lights. -Admitting a new partner into the partnership
-Admitting a new partner into the partnership
Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership -As rent -For wages -As an annuity to the spouse of a deceased partner -All of the above
-All of the above
Subchapter S corporation will avoid double taxation only if which of the following applies? -All the shareholders agree to be taxed as in a partnership. -The corporation files Articles of Partnership in the state where it has its principal place of business. -The corporation has no retained earnings -All of the above are necessary to avoid double taxation.
-All the shareholders agree to be taxed as in a 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.
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
Which of the following best describes the "double taxation" on corporate profits? -The profits of a corporation are taxed at twice the rate of the highest individual tax rate. -The income an individual gets from dividends is taxed at twice the rate of the income he gets from wages. -The IRS is twice as likely to audit returns with dividend income as it is to audit returns with income from wages only. -Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.
-Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.
Any change in the identity of the partners, whether through death, withdrawal, or the adding of a new partner, results in the ________________of the old partnership. -Termination -Winding up -Dissolution -Disengagement
-Dissolution
A doctor who practices as part of a professional association cannot be sued for malpractice. -True -False
-False
A limited partnership has to have at least two general partners and at least one limited partner -True -False
-False
An incoming partner has unlimited personal liability for the already existing debts of the partnership. -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
Partnerships are required to use the term "Company" in their names. -True -False
-False
The partnership must pay interest each year on the capital contributions of the partners. -True -False
-False
Bob and Sue, who are both attorneys, agreed to share office space and other overhead expenses in order to save money. They did not agree to form a partnership. They do not share profits or losses and neither has a say in the management of the other's business. The sign outside their door, and on their common letterhead, reads: "Bob Smith and Sue Jones, Attorneys at Law." Using this stationary, Bob purchased office equipment from Smart Buy. Sue at no time used the equipment and did not enter into the contract with Smart Buy. Bob did not pay for the equipment and Smart Buy wants to hold Sue liable. Is Sue liable as a partner for this purchase? -Yes, allowing her name to be used with Bob's in the same letterhead created an express partnership. -Yes, allowing her name to be used with Bob's in the same letterhead created an implied partnership -Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel -No, there was no sharing of profits or losses or management rights so there was no partnership.
-Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel
By statute, a limited partnership must have a minimum of ____________limited partners. -one -two -four -five
-one
By statute, a limited partnership must have a minimum of ___________general partners. -one -two -four -five
-one
