Question 1

One of the major disadvantages of a partnership is that profits must be divided equally.

Accepted Answer

The division of profits in a partnership can be determined by the partnership agreement and doesn't have to be equal.

Question 2

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer.

Accepted Answer

The Uniform Partnership Act does not require shares of stock to represent ownership, nor does it provide for limited liability. Instead, it emphasizes shared management and liability among partners, as well as ease of ownership transfer within the terms of the partnership agreement.

Question 3

A general partner takes an active role in the management of the business.

Accepted Answer

A general partner is responsible for the day-to-day management of the business and has unlimited personal liability for the debts and obligations of the business.

Question 4

A major objective of limited liability partnerships (LLPs) is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision.

Accepted Answer

This is a basic characteristic of LLPs - each partner's personal liability is limited to their own actions and those they supervise.

Question 5

Limited partnerships are just like general partnerships, except that they are partners for a limited time period.

Accepted Answer

Limited partnerships have at least one general partner and one limited partner, and the limited partner's liability is limited to their investment in the partnership. The partnership does not necessarily have a limited time period.

Question 6

Rhonda is convinced she has the best idea for a new business. Unfortunately, her business would require a fairly high initial investment and Rhonda has poor credit and very little personal wealth. She would be unlikely to find success if she organized her business as a sole proprietorship.

Accepted Answer

Funds available to sole proprietorships are often limited to the amount the owner can raise. Thus, Rhonda's business would probably have a hard time raising enough money if she organized it as a sole proprietorship.

Question 7

Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships.

Accepted Answer

Master limited partnerships are taxed like partnerships, even though their shares can be purchased on national stock exchanges. This means they pass through their income, deductions, credits, and losses to their partners or shareholders, who are then taxed on their share of the partnership's income.

Question 8

A limited partnership consists of one or more general partners and one or more limited partners.

Accepted Answer

This is correct according to the definition of a limited partnership. The general partner(s) have unlimited liability and manage the business, while the limited partner(s) have limited liability and do not participate in management.

Question 9

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) common ownership, (2) shared profits and losses, and (3) the right to participate in managing the operations of the business.

Accepted Answer

The Uniform Partnership Act does indeed require these three elements for a general partnership to exist.

Question 10

All partners in a general partnership have limited liability for the debts of their firm.

Accepted Answer

In a general partnership, all partners have unlimited liability for the debts and obligations of the firm. This means that they are personally responsible for the partnership's debts, which could potentially extend to their personal assets.

Question 11

In order to protect all parties and minimize misunderstandings among partners, all terms of the partnership should be spelled out in writing.

Accepted Answer

Having a written partnership agreement can help clarify each partner's responsibilities, expectations, profit sharing, decision-making processes, and other important details that can prevent disputes and legal issues down the line.

Question 12

Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they don't need to worry about a court requiring them to sell off personal assets to pay for the debts of the firm.

Accepted Answer

Sole proprietorships have unlimited liability. This means that the proprietor is financially responsible for all debts incurred by the company. In a court of law, a judge could require the owner/proprietor to liquidate personal assets to pay the debts of the business.

Question 13

In a general partnership, all partners are entitled to an equal share of the firm's profits.

Accepted Answer

In a general partnership, the distribution of profits is not necessarily equal and can be determined by the partnership agreement, which may allocate profits according to the partners' contributions or other agreed-upon terms.

Question 14

A recent study showed that partnerships are more likely to fail than sole proprietorships.

Accepted Answer

Studies and statistics on business success rates vary, but there is no definitive evidence to suggest that partnerships are more likely to fail than sole proprietorships. Success can depend on many factors including the nature of the business, market conditions, and the management skills of the owners.

Question 15

Therese is a talented designer who wants to start her own women's swimwear and beach towel line. But first, she is trying to decide which form of business ownership is right for her. As a young mom who hopes to send her children to college some day, she does not want to jeopardize her savings in any way. In order to overcome these risks, Therese should start her business as a sole proprietorship.

Accepted Answer

Therese is concerned about the risk of losing personal assets if her business does not succeed. Although the sole proprietorship is easy to set up, it may not be the best form of business ownership for Therese due to her need to protect personal assets. She may want to consider a form of ownership that provides limited liability, like a corporation.

Question 16

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

Accepted Answer

A limited partner is a type of partner in a partnership where they are not involved in the day-to-day management of the business and have limited liability. This means they are only liable for losses up to the amount of their investment, and are not personally responsible for any additional debts or losses incurred by the partnership.

Question 17

A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts.

Accepted Answer

A general partner has unlimited liability for the debts of the partnership regardless of whether they personally approved the decisions leading to those debts.

Question 18

The Uniform Partnership Act is law in most states, except California, Oregon, and Colorado.

Accepted Answer

The Uniform Partnership Act is not law in most states, it is actually law in all states including California, Oregon, and Colorado. However, some states have made modifications to the Act to better suit their individual needs.

Question 19

In a general partnership, all partners share in management of the business and in the liability for the firm's debts.

Accepted Answer

In a general partnership, all partners have equal authority to manage the business and are personally liable for the debts and obligations of the partnership.

Question 20

Attracted to the idea of being his own boss, Christian wants to start a new business. He is confident in his abilities, and knows his potential market is strong, so he is not particularly worried about the financial risks. All of these factors suggest that Christian may favor starting his business as a sole proprietorship.

Accepted Answer

People who want to be their own boss often prefer to operate their business, at least initially, as a sole proprietorship. An advantage of the sole proprietorship is that it is a relatively easy and inexpensive form of business to set up. One drawback of a sole proprietorship is that the owner has unlimited liability. However, at this time, Eric is not worried about risk. The unlimited liability factor does not appear to be a problem for him.

Quiz 5: How to Form a Business