Question 1

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

Accepted Answer

The answer of A recent study showed that partnerships are...

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, limited liability, or ease of ownership transfer as key elements of a general partnership. Rather, the key elements include the sharing of profits and losses, joint ownership and management, and personal liability for business debts and obligations.

Question 3

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

Accepted Answer

Limited partnerships are not just like general partnerships. In a limited partnership, there are two types of partners: general partners who have unlimited liability and control, and limited partners who have limited liability and no control. Limited partnerships also have a specific time frame for the partnership to exist.

Question 4

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

Accepted Answer

This is the definition of a limited partner.

Question 5

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

Accepted Answer

It is always recommended to have a written partnership agreement that clearly outlines the terms, responsibilities, and expectations of each partner in order to avoid any confusion or disputes in the future.

Question 6

Eric wants to start a business. He is attracted to the idea of being his own boss, and wants to get started with a minimum of expense and hassle. He is confident in his abilities, and the market he can draw from, so he is not particularly worried about financial risks. All of these factors suggest that Eric may favor starting his business as a sole proprietorship.

Accepted Answer

Eric's desire to be his own boss and start with minimal expense and hassle, as well as his confidence in his abilities and market, all suggest a preference for a sole proprietorship. Additionally, his lack of concern about financial risks is also a common characteristic of sole proprietorship owners.

Question 7

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

Accepted Answer

The answer of In a general partnership, all partners are...

Question 8

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

Accepted Answer

Starting a business as a sole proprietorship means that the owner has unlimited personal liability for the business's debts and obligations. It would be wiser for Sandy to consider forming a limited liability company (LLC) or a corporation, which would provide her with some protection for her personal assets.

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

This is the definition of a general partnership according to the Uniform Partnership Act.

Question 10

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

The main purpose of forming an LLP is to protect individual partners from being personally liable for the partnership's debts and obligations. Each partner is only responsible for their own actions and those of their employees under their direct supervision, and not for the actions of other partners or employees of the partnership.

Question 11

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 management responsibilities and share in the profits and losses, as well as the liability for the business debts. This means that each partner is personally responsible for the debts and obligations of the partnership.

Question 12

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

The answer of A general partner has unlimited liability for...

Question 13

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 of their firm, meaning their personal assets can be used to pay off business debts. Limited liability is a feature of a limited partnership or a corporation.

Question 14

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

Accepted Answer

In a sole proprietorship, the owner and the business are considered the same entity, which means personal assets may be used to pay off business debts in bankruptcy proceedings.

Question 15

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

Accepted Answer

Profits in a partnership can be divided in any agreed-upon way among the partners. It does not necessarily have to be divided equally.

Question 16

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

Accepted Answer

A general partner is an owner in a partnership and is actively involved in the day-to-day management and decision-making of the business.

Question 17

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

Accepted Answer

A limited partnership has at least one general partner who manages the business and is personally liable for the partnership's debts, and one or more limited partners who invest capital but have limited liability and no management responsibilities.

Question 18

The Uniform Partnership Act is law in every state except Louisiana.

Accepted Answer

The Uniform Partnership Act is indeed law in every state except Louisiana.

Question 19

Rocky Rhodes is convinced that he has a great idea for a new business. Unfortunately, the type of business he wants to start would require a fairly high initial investment and Rocky has a poor credit rating and very little personal wealth. Rocky would be unlikely to find success if he organized his business as a sole proprietorship.

Accepted Answer

As a sole proprietorship, Rocky would be personally responsible for all the financial obligations and liabilities of the business. With a poor credit rating and little personal wealth, it would be difficult for him to secure the necessary funds for a high initial investment. Therefore, organizing his business as a sole proprietorship would make it unlikely for him to find success.

Question 20

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, which means they are not subject to corporate income tax. Instead, the tax liabilities of the partnership flow through to the individual investors who own the shares.

Quiz 5: How to Form a Business