Question 1

Explain the nature of partnership liabilities. ​

Accepted Answer

Unless their agreement provides otherwise, partners have joint liability on all partnership contractual liabilities and joint and several liable for all torts.  If the partnership does not have adequate assets to pay the firm's debts or liabilities, the general partners have individual liability for the full amount of the debts or liabilities.  If all the partners but one are insolvent, the remaining solvent partner must pay all the debts. The solvent partner has a right of contribution but may be unable to collect.  A partner who withdraws is liable for all partnership debts up to the time of the withdrawal. ​

Question 2

In a partnership, majority rule applies to such actions as an assignment for the benefit of creditors

Accepted Answer

In a partnership, decisions such as an assignment for the benefit of creditors typically require the consent of all partners, not just a majority.

Question 3

When a partner makes an honest mistake (and does not commit negligence)while working on behalf of the partnership :
A)Both the partner and the partnership are excused from liability.
B)The entire firm is liable if third parties are involved.
C)The other partners are equally liable.
D)The partner who made the mistake is liable if third parties are involved.

Accepted Answer

The partnership is liable for the mistakes of its partners, even if the mistakes are honest and not negligent.

Question 4

In a case of a false impression of a partnership, the law will frequently hold that the apparent partners are estopped from denying that a partnership exists.

Accepted Answer

When someone has been led to believe that a partnership exists, and they have relied on this belief to their detriment, the principle of estoppel can prevent the apparent partners from denying the existence of the partnership. This is to protect the interests of third parties who have acted based on the false impression of a partnership.

Question 5

Mark and James established a partnership to deal in textiles. Both of them contributed equal capital to the partnership. Which of the following is true?
A)Mark and James have the right to participate in the management of the partnership
B)Mark can be held liable for James committing robbery.
C)Neither Mark nor James has the authority to bind the partnership without the signature of the other.
D)Neither Mark nor James has the authority to endorse checks without the signature of the other.

Accepted Answer

In a partnership, all partners have the right to participate in the management of the partnership unless otherwise agreed upon. This is a fundamental principle of partnerships, allowing each partner to have a say in the business operations.

Question 6

If a partner acts as an agent for the partnership, the resulting contract:
A)Would not be binding on the other partners.
B)Would not be enforceable by law.
C)Cannot be avoided by the other partners.
D)Is void unless the other partners ratify it

Accepted Answer

In a partnership, when a partner acts within the scope of their authority as an agent for the partnership, the contract they enter into is binding on the partnership and the other partners. They cannot avoid their obligations under the contract simply because they did not personally enter into it.

Question 7

In the absence of a statute to the contrary, a written partnership agreement need not be in a particular form.

Accepted Answer

A written partnership agreement does not need to adhere to a specific form unless there is a statute specifying otherwise. The agreement can be structured in various ways as long as it covers the essential terms and conditions agreed upon by the partners.

Question 8

What is the effect of the right of a partner to participate in management of the business?
A)It allows one partner to totally run the business.
B)The exercise of this right often leads to more agreement by the partners.
C)Every partner may hire family members to work in the business.
D)It allows partners to maintain control over their investments.

Accepted Answer

The right to participate in management allows partners to have a say in business decisions, thereby maintaining control over their investments.

Question 9

Personal creditors of one partner can force the sale of specific pieces of partnership property.

Accepted Answer

Personal creditors of one partner cannot directly force the sale of specific pieces of partnership property because the partner does not own the property individually; it is owned by the partnership as a whole.

Question 10

Which of the following should be contained in the articles of partnership?
A)Biographical details of each partner
B)Each partner's personal address
C)Allowance of withdrawals of profits.
D)Names of every partner's guarantor

Accepted Answer

The articles of partnership typically include terms regarding the distribution and withdrawal of profits, ensuring that each partner understands how profits will be shared and under what conditions they can withdraw their share. This is essential for the financial management and operational harmony of the partnership.

Question 11

A written partnership agreement might help avoid some disputes over rights and duties. ​

Accepted Answer

A written partnership agreement can clearly outline the rights, duties, and responsibilities of each partner, helping to prevent misunderstandings and disputes.

Question 12

What does a partner's duty to exercise loyalty and good faith mean?
A)Even a trivial breach of the partnership agreement will justify dissolution.
B)The partnership contract must be observed scrupulously.
C)A partner may seize an opportunity that conflicts with the interests of the partnership only if he does not use assets of the partnership in the transaction.
D)A partner must put the firm's interest above personal advantage until profits are made.

Accepted Answer

The duty of loyalty and good faith requires partners to act in the best interests of the partnership and to avoid conflicts of interest. This means that partners must observe the partnership contract scrupulously and may not seize opportunities that conflict with the interests of the partnership.

Question 13

Which of the following best describes the articles of partnership? ​
A)It is a written agreement of all the partners.
B)It is an unwritten agreement of the founding partners.
C)It is an implied agreement of all the partners.
D)It is a verbal agreement of the primary partners to form a partnership.

Accepted Answer

The articles of partnership refer to a written agreement that outlines the terms and conditions agreed upon by all partners involved in the partnership. This document typically includes details such as the distribution of profits and losses, the responsibilities of each partner, and the procedures for adding or removing partners, among other things.

Question 14

Each partner has the duty to inform the other partners about matters relating to personal profits from sources other than the partnership that do not relate to the goals of the partnership .

Accepted Answer

Partners are generally not required to inform other partners about personal profits from sources unrelated to the partnership, as their duty to inform typically pertains to matters directly affecting the partnership's business.

Question 15

Brian, Kirk, and Jim established a partnership with equal capital contributions. However, Kirk provided an additional contribution in the form of a loan to the company. Which of the following is true?
A)Brian can withdraw capital advances from the partnership.
B)Any of the partners can withdraw their capital contribution or advances at any time.
C)Kirk can withdraw his capital advance after its due date.
D)Jim can withdraw capital advances from the partnership. ​

Accepted Answer

Kirk's additional contribution in the form of a loan allows him to withdraw his capital advance after its due date, as it is treated differently from capital contributions and is subject to the terms of the loan agreement.

Question 16

Zen Products, a lumber wholesaler, operates in a state where individual sales are prohibited for wholesalers. If one of the partners sells one sheet of plywood to an individual, the contract is likely to be:
A)Not binding on the firm.
B)Binding on the firm.
C)Enforceable on the selling partner.
D)Enforceable in a court of law.

Accepted Answer

Since the sale violates state regulations that prohibit individual sales by wholesalers, the contract would not be binding on the firm. Wholesalers are typically restricted to selling to retailers or other businesses, not directly to consumers.

Question 17

Every partner has the duty to abide by majority vote.

Accepted Answer

In a partnership, decisions are often made based on a majority vote, and each partner has a duty to abide by these decisions as long as they are within the scope of the partnership agreement and do not violate any laws.

Question 18

A partner who commits a tort has liability for indemnifying the partnership for any loss it sustains.

Accepted Answer

Under partnership law, a partner who commits a tort that results in a loss to the partnership is liable to indemnify the partnership for that loss. This means the partner must compensate the partnership for any damages it incurs as a result of their wrongful actions.

Question 19

By virtue of the existence of a partnership, each partner has the authority to enter into binding contracts on behalf of the partnership.

Accepted Answer

In a partnership, each partner is considered an agent of the partnership for the purpose of its business. Therefore, each partner has the authority to enter into binding contracts on behalf of the partnership, as long as the actions are within the scope of the partnership's business activities.

Question 20

If a partnership agreement does not fix the ratio of sharing the profits and the losses, they are to be shared in proportion to the contribution of capital.

Accepted Answer

In the absence of a partnership agreement specifying the ratio, profits and losses are to be shared equally among the partners, regardless of the proportion of their capital contributions.

Quiz 30: Creation and Operation of a Partnership

Explain the nature of partnership liabilities.

In a partnership, majority rule applies to such actions as an assignment for the benefit of creditors

When a partner makes an honest mistake (and does not commit negligence) while working on behalf of the partnership :

In a case of a false impression of a partnership, the law will frequently hold that the apparent partners are estopped from denying that a partnership exists.

Mark and James established a partnership to deal in textiles. Both of them contributed equal capital to the partnership. Which of the following is true?

If a partner acts as an agent for the partnership, the resulting contract:

In the absence of a statute to the contrary, a written partnership agreement need not be in a particular form.

What is the effect of the right of a partner to participate in management of the business?

Personal creditors of one partner can force the sale of specific pieces of partnership property.

Which of the following should be contained in the articles of partnership?

A written partnership agreement might help avoid some disputes over rights and duties.

What does a partner's duty to exercise loyalty and good faith mean?

Which of the following best describes the articles of partnership?

Each partner has the duty to inform the other partners about matters relating to personal profits from sources other than the partnership that do not relate to the goals of the partnership .

Brian, Kirk, and Jim established a partnership with equal capital contributions. However, Kirk provided an additional contribution in the form of a loan to the company. Which of the following is true?

Zen Products, a lumber wholesaler, operates in a state where individual sales are prohibited for wholesalers. If one of the partners sells one sheet of plywood to an individual, the contract is likely to be:

Every partner has the duty to abide by majority vote.

A partner who commits a tort has liability for indemnifying the partnership for any loss it sustains.

By virtue of the existence of a partnership, each partner has the authority to enter into binding contracts on behalf of the partnership.

If a partnership agreement does not fix the ratio of sharing the profits and the losses, they are to be shared in proportion to the contribution of capital.

Quiz 30: Creation and Operation of a Partnership

Explain the nature of partnership liabilities. ​

In a partnership, majority rule applies to such actions as an assignment for the benefit of creditors

When a partner makes an honest mistake (and does not commit negligence) while working on behalf of the partnership :

In a case of a false impression of a partnership, the law will frequently hold that the apparent partners are estopped from denying that a partnership exists.

Mark and James established a partnership to deal in textiles. Both of them contributed equal capital to the partnership. Which of the following is true?

If a partner acts as an agent for the partnership, the resulting contract:

In the absence of a statute to the contrary, a written partnership agreement need not be in a particular form.

What is the effect of the right of a partner to participate in management of the business?

Personal creditors of one partner can force the sale of specific pieces of partnership property.

Which of the following should be contained in the articles of partnership?

A written partnership agreement might help avoid some disputes over rights and duties. ​

What does a partner's duty to exercise loyalty and good faith mean?

Which of the following best describes the articles of partnership? ​

Each partner has the duty to inform the other partners about matters relating to personal profits from sources other than the partnership that do not relate to the goals of the partnership .

Brian, Kirk, and Jim established a partnership with equal capital contributions. However, Kirk provided an additional contribution in the form of a loan to the company. Which of the following is true?

Zen Products, a lumber wholesaler, operates in a state where individual sales are prohibited for wholesalers. If one of the partners sells one sheet of plywood to an individual, the contract is likely to be:

Every partner has the duty to abide by majority vote.

A partner who commits a tort has liability for indemnifying the partnership for any loss it sustains.

By virtue of the existence of a partnership, each partner has the authority to enter into binding contracts on behalf of the partnership.

If a partnership agreement does not fix the ratio of sharing the profits and the losses, they are to be shared in proportion to the contribution of capital.

Explain the nature of partnership liabilities.

A written partnership agreement might help avoid some disputes over rights and duties.

Which of the following best describes the articles of partnership?