Question 1

Bill sells Corner Deli, a sole proprietorship, to Debra. This is​

Accepted Answer

Selling Corner Deli means that Bill is transferring the ownership of the business to Debra. As a sole proprietorship, the business is not a separate legal entity, so the transfer of ownership is legally possible.

Question 2

Luke and Maya form Northeast Air Express, a partnership. The essential elements of this partnership do not include​

Accepted Answer

Goodwill is not an essential element of a partnership. Goodwill is the value of reputation, customer base, and other intangible assets of a business, which can be bought or sold separately. While it may be desirable for a partnership to have goodwill, it is not necessary for the formation or existence of a partnership. The essential elements of a partnership are the sharing of profits and losses, joint ownership and control of the business, and mutual agency (meaning each partner can act on behalf of the partnership).

Question 3

Craig, Donna, and Eve do business as Fast-Track Career Consultants. Eve's relationship to Fast-Track ends, but the firm continues to do business. This is​

Accepted Answer

This is dissociation, where one partner leaves the business but the business continues to operate with the remaining partners. It is a common occurrence in partnerships and is legally recognized.

Question 4

Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is​

Accepted Answer

A partnership can be formed through an oral, written or implied agreement. It does not necessarily need to be in writing or explicitly stated, but can also be implied through the conduct of the parties involved. Therefore, option C is the best choice.

Question 5

Fact Pattern 18-1
Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 18-1. The partners decide to dissolve Equity Lending. Duke collects and distributes the firm's assets. This results in​

Accepted Answer

When the partners decide to dissolve Equity Lending and Duke collects and distributes the firm's assets, it results in the termination of the firm's legal existence. This means that the firm no longer exists as a legal entity and cannot continue its business operations.

Question 6

Olivia is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Olivia does not participate in, know about, or ratify, she would be liable for​

Accepted Answer

In a general partnership, partners are jointly and severally liable for all partnership obligations unless otherwise agreed upon. This means that Olivia would be liable for all obligations, even if she was not aware of them, did not participate in them, or did not agree to them.

Question 7

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is​

Accepted Answer

In a partnership, unless the partnership agreement specifies otherwise, partners are not entitled to compensation for participating in the management of the business. They share in the profits and losses according to their partnership agreement.

Question 8

Rosa is a partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is​

Accepted Answer

In a general partnership, each partner is personally liable for the debts of the business to the full extent of their personal assets, not just to the amount of their investment in the partnership. This means Rosa would be personally liable for the full extent of the debt incurred by Silver Dragon for the new dining tables and chairs.

Question 9

Ford is the sole proprietor of Go, a game app subscription service. As a sole proprietor, on the business's profits, Ford pays​

Accepted Answer

As a sole proprietor, Ford is required to report the income from Go on his personal income tax return. Sole proprietorships do not pay separate business income taxes; instead, the owner pays personal income taxes on the business's profits.

Question 10

Ed, a partner in Farm Equipment Sales, applies for a loan with Growers Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Ed is not authorized to take out the loan. Liability in the event of default will be imposed on​

Accepted Answer

Since Ed acted without the authorization of the other partners and the bank was aware of this lack of authorization, Ed would be personally liable for the loan in the event of default. The liability does not extend to Farm Equipment or Growers Bank under these circumstances.

Question 11

Fact Pattern 18-1
Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 18-1. Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation results in​

Accepted Answer

Cornell's assignment of his interest in Equity Lending without the consent of the other partners is a breach of their partnership agreement. As a result, Cornell is wrongfully dissociating from the partnership and may be held liable for any damages that result. However, this does not mean that Equity Lending's legal existence is automatically terminated, nor does it automatically make Cornell liable for all of Equity Lending's debts.

Question 12

Sara and Terry agree while talking on the phone to form a partnership to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must​

Accepted Answer

Under the Statute of Frauds, agreements related to real property must be in writing to be enforceable. Filing in a state office, notarization, and involvement of third parties are not necessary requirements for enforceability under the Statute of Frauds.

Question 13

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records​

Accepted Answer

Partners in a partnership have the right to inspect the books and records of the partnership in their entirety. This right is fundamental to ensuring that partners can monitor the financial health and operations of the business, make informed decisions, and protect their investments.

Question 14

Ken owns and operates Living Earth Garden Shop as a sole proprietorship. When Ken dies, Living Earth will automatically​

Accepted Answer

As a sole proprietorship, Living Earth Garden Shop is legally inseparable from its owner, Ken. Upon Ken's death, the business does not have a separate legal existence to continue operating or to be passed on as an entity. Therefore, it will automatically dissolve.

Question 15

Selections, a partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions​

Accepted Answer

Since there are five partners in the partnership, a majority would mean at least three out of the five partners must agree for a management decision to be made. Therefore, A is the best choice. Tony, as a one-third partner, does not hold a controlling interest in the partnership. There is no mention of a senior partner, and four out of five partners agreeing would also not constitute a majority.

Question 16

Gwen and Hugo do business as Gwen & Hugo Civil Engineers, a partnership. This firm is governed by the Uniform Partnership Act​

Accepted Answer

The Uniform Partnership Act governs partnerships in the absence of an express agreement.

Question 17

Fact Pattern 18-1
Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 18-1. Bryn, Cornell, and Duke decide to admit Giselle as a new partner in Equity Lending. Giselle's liability for partnership debts incurred before her admission is​

Accepted Answer

Giselle's liability for partnership debts incurred before her admission is limited to her capital contribution to the firm, as this is the general rule for new partners joining an existing partnership. However, it is important to note that Giselle's liability for any debts incurred after her admission will be unlimited, as is the case for all partners in a general partnership.

Question 18

Rita and Salvatore do business as Tech Fixers, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as​

Accepted Answer

A partnership is considered an entity separate from its individual partners for legal and accounting purposes.

Question 19

Diane organized, and owns and operates, Reliable Roofing, a construction outfit, in the simplest form of business organization. This is​

Accepted Answer

A sole proprietorship is the simplest form of business organization where the owner (in this case, Diane) fully owns and operates the business without any legal separation between her and the company.

Question 20

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding​

Accepted Answer

The formation of a partnership agreement is legally binding without any further requirement as long as the agreement meets the basic requirements for a contract, which include mutual agreement, consideration, legality of purpose, and capacity of the parties involved. None of the other options (A, B, or C) are necessary for the formation of a legally binding partnership agreement.

Quiz 18: Small Businesses and Limited Liability Companies

Bill sells Corner Deli, a sole proprietorship, to Debra. This is​

Luke and Maya form Northeast Air Express, a partnership. The essential elements of this partnership do not include​

Craig, Donna, and Eve do business as Fast-Track Career Consultants. Eve's relationship to Fast-Track ends, but the firm continues to do business. This is​

Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is​

Olivia is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Olivia does not participate in, know about, or ratify, she would be liable for​

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is​

Rosa is a partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is​

Ford is the sole proprietor of Go, a game app subscription service. As a sole proprietor, on the business's profits, Ford pays​

Ed, a partner in Farm Equipment Sales, applies for a loan with Growers Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Ed is not authorized to take out the loan. Liability in the event of default will be imposed on​

Sara and Terry agree while talking on the phone to form a partnership to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must​

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records​

Ken owns and operates Living Earth Garden Shop as a sole proprietorship. When Ken dies, Living Earth will automatically​

Selections, a partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions​

Gwen and Hugo do business as Gwen & Hugo Civil Engineers, a partnership. This firm is governed by the Uniform Partnership Act​

Rita and Salvatore do business as Tech Fixers, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as​

Diane organized, and owns and operates, Reliable Roofing, a construction outfit, in the simplest form of business organization. This is​

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding​

Bill sells Corner Deli, a sole proprietorship, to Debra. This is

Luke and Maya form Northeast Air Express, a partnership. The essential elements of this partnership do not include

Craig, Donna, and Eve do business as Fast-Track Career Consultants. Eve's relationship to Fast-Track ends, but the firm continues to do business. This is

Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is

Olivia is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Olivia does not participate in, know about, or ratify, she would be liable for

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is

Rosa is a partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is

Ford is the sole proprietor of Go, a game app subscription service. As a sole proprietor, on the business's profits, Ford pays

Ed, a partner in Farm Equipment Sales, applies for a loan with Growers Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Ed is not authorized to take out the loan. Liability in the event of default will be imposed on

Sara and Terry agree while talking on the phone to form a partnership to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records

Ken owns and operates Living Earth Garden Shop as a sole proprietorship. When Ken dies, Living Earth will automatically

Selections, a partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions

Gwen and Hugo do business as Gwen & Hugo Civil Engineers, a partnership. This firm is governed by the Uniform Partnership Act

Rita and Salvatore do business as Tech Fixers, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as

Diane organized, and owns and operates, Reliable Roofing, a construction outfit, in the simplest form of business organization. This is

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding