Question 1

Jack and Jill were living together.Jack wanted to start a small retail store,but did not have good credit.Jill,whose credit was excellent,signed loan agreements with Jack so he could borrow the money to start the business.Jack used business cards that stated he was the "owner" of the business.He and Jill filed separate tax returns.Jack stated he was self-employed and claimed the business was a sole proprietorship.The money that was earned from the store was placed into a joint checking account owned and used by Jack and Jill.When there were significant decisions to be made about the business,such as deciding to franchise the business,the decision was made jointly by Jack and Jill.
Five years after the business was started,Jill left Jack.She claimed she was entitled to one-half the business's profits since she and Jack were partners.Jack disagreed and claimed they never had a partnership.Discuss Jill's claim.

Accepted Answer

The answer of Jack and Jill were living together.Jack wanted...

Question 2

Ending a partnership involves which of the following three steps?

Accepted Answer

The three steps involved in ending a partnership are dissolution (ending the partnership agreement), winding up (settling all debts and obligations), and termination (the final extinguishment of the partnership). Option B has incorrect terminology, option C is incorrect and incomplete, and option D is missing the step of winding up.

Question 3

Nancy was a partner of a small business.She could see that the business was beginning to fail and that it was very unlikely it would recover.Not wanting to lose her investment,she asked that the court require the partnership to dissolve since she did not have a legal right to withdraw at that time.Does a court have the authority to order a partnership to dissolve?

Accepted Answer

Under the Uniform Partnership Act (UPA), a court can dissolve a partnership if it determines that the partnership is unlikely to succeed. This can be at the request of a partner or partners, or even on its own motion. Therefore, Nancy may be able to have the partnership dissolved by the court if she can demonstrate that it is not likely to recover.

Question 4

Daria is a partner in a small coffeeshop.If she acts with actual or implied authority,then she has

Accepted Answer

As a partner, Daria has both the power and the right to bind the partnership, as long as she acts with actual or implied authority. This means that she can make decisions and enter into agreements on behalf of the partnership, and those decisions and agreements will be binding on all partners.

Question 5

Art and Alma made capital contributions of 60% and 40% respectively to their newly formed partnership,AA & Associates.They did not have a written partnership agreement.At the end of the first year,the partnership made a profit of which Alma now claims half.However,Art maintains he should receive 60%.Who is correct?

Accepted Answer

The Uniform Partnership Act (UPA) provides that profits and losses are split equally among partners unless otherwise agreed upon in a partnership agreement. Since there was no written partnership agreement in this case, the default rule applies, and profits should be split equally between Art and Alma, regardless of their capital contributions. Therefore, Alma is correct in claiming half of the profits.

Question 6

Kayla and Marshall formed a partnership.Marshall incurred a debt in the ordinary course of the partnership business.If the debt is not paid,the creditor may sue

Accepted Answer

In a partnership, each partner is individually liable for partnership debts, but the creditor may also sue the partnership itself. This means that the creditor can sue either Marshall individually, the partnership as a separate entity, or both Marshall and the partnership together. There is no obligation for the creditor to sue both at the same time, and they may choose to pursue separate lawsuits or any combination of lawsuits to collect the debt. Option D is incorrect as the creditor is not required to sue both Marshall and the partnership together.

Question 7

Anne and Mike were winding up their partnership.Mike was approached by a person who wanted the partnership to do some work for him.Mike agreed that the partnership would do the work.Generally speaking,in such a situation

Accepted Answer

Anne would be liable unless she filed a statement of dissolution with the secretary of state within 90 days of when Mike entered the contract. The fact that the partnership was winding up does not automatically release Anne from liability. In addition, Anne's consent to the work is not relevant in determining liability. Mike's conduct being wrongful is also not a determinative factor in this situation.

Question 8

In which case did the plaintiff wish to be a partner so he could share in the profits of the enterprise?

Accepted Answer

In the case of Herman v. Pickell & Kaleidoscope Books, the plaintiff wanted to be recognized as a partner so he could share in the profits of the enterprise.

Question 9

Theresa and Bobbi bought a racecar together.They agreed to share all expenses and split net profits equally.There was no agreement as to the duration of the partnership.After about a year,Bobbi decided she was tired of the racing business and left the partnership.Bobbi did not violate the partnership agreement.Theresa claims Bobbi's leaving was wrongful.Is Theresa correct?

Accepted Answer

In this case, there was no agreement as to the duration of the partnership, which means that it is a partnership at will. In a partnership at will, any partner has the right to leave the partnership at any time without breaching the partnership agreement. Therefore, Bobbi's leaving the partnership was not wrongful, and Theresa's claim is not correct.

Question 10

At what stage are the partnership debts paid and the proceeds distributed to the partners?

Accepted Answer

The partnership debts are paid and the proceeds distributed to the partners during the winding up process, which is the phase following dissolution where the partnership's affairs are finalized.

Question 11

Astrid and Razi formed a partnership in which they agreed to share profits 60 percent to Astrid and 40 percent to Razi.Losses will be shared

Accepted Answer

Losses in a partnership are typically shared in the same proportion as profits unless the partnership agreement specifies otherwise. Since Astrid and Razi agreed to share profits 60% to Astrid and 40% to Razi, losses would also be shared in the same ratio unless they agreed to a different arrangement.

Question 12

Larry and Reed are partners in Custom Pet Grooming.As they are both nearing retirement age,when they form their partnership,they agree they will end their business relationship and sell Custom Pet Grooming in three years.Larry and Reed have a

Accepted Answer

Larry and Reed have a term partnership because they have agreed to end their business relationship and sell the company in three years. This is a specific duration for the partnership, making it a term partnership.

Question 13

Max,Jenny,and Craig are partners.They have purchased an elegant Victorian home and converted it into an office for their partnership.Craig decides to use the partnership's office to host some evening parties.Craig has a sideline business of arranging expensive gatherings and charging each person a handsome price to attend these "elite" parties.When Max and Jenny find out what Craig is doing,they demand that he pay them for the use of the property.How much money,if any,is Craig required to pay the partnership?

Accepted Answer

Craig's use of the partnership's property for his personal gain is a breach of his fiduciary duty to the partnership. Therefore, he is required to turn over any profits he earned from using the partnership property. This is because any gains made by a partner from the use of partnership property without the consent of the other partners belong to the partnership.

Question 14

Judy believed that Ray and Don were partners in an automotive repair business.Ray and Don were not partners.Ray owned the business as a sole proprietor.Ray,however,allowed Don,his unemployed brother-in-law,to be around the business.When Judy was having her car repaired,Ray said,"My partner here,Don,will give you a ride to work this morning so you can leave your car here.He will give you a ride back here after work,and your car will be done." Judy allowed Don to drive her to work.While riding with Don,he accidentally ran a stop light and caused an accident.Judy was hurt and claims that both Don and Ray are liable to her.Is she right?

Accepted Answer

This situation is an example of a partnership by estoppel, where someone represents another as their partner, leading third parties to believe in the existence of a partnership. In this case, Ray's introduction of Don as his partner led Judy to believe that Don was indeed Ray's partner, making both potentially liable for the accident.

Question 15

Randy,Joan,and Arnie are partners.Their agreement did not address dissociation nor how long the partnership would last.Randy decided to leave the partnership.What happens when Randy serves notice he intends to withdraw?

Accepted Answer

Since the partnership agreement did not address dissociation or the duration of the partnership, in this situation, Randy's withdrawal triggers the process of either buying him out and continuing in business or winding up the business and terminating the partnership. Therefore, option A is the best choice.

Question 16

Gary and Herman are partners in a lawn mower repair business in Ohio.While Gary is on vacation,visiting his sister in Georgia,his sister's neighbor has trouble with her mower and Gary fixes it for her.She insists on paying him.Gary

Accepted Answer

As a partner in a lawn mower repair business, Gary is obligated to turn over any earned income from repairs to the partnership, regardless of whether he performed the work while on vacation or not. This ensures that all revenue generated by the business is accounted for and properly distributed among the partners.

Question 17

Lori and Dan own a small restaurant as partners.Dan works several hours a day cooking,waiting on tables,doing the books,and so forth.Dan believes he is entitled to be paid at least a standard wage for all his work since,at the present time,the part-time kitchen helpers earn more than he does! Lori claims Dan is not entitled to anything other than one-half the net profits.Is Lori right?

Accepted Answer

Partners in a partnership may agree to pay themselves a salary or wage for work done on behalf of the partnership, but it must be explicitly agreed upon in the partnership agreement. If there is no agreement allowing for payment of wages, partners are only entitled to their share of the net profits. Therefore, Lori is correct that Dan is not entitled to a standard wage unless it was agreed upon in their partnership agreement.

Question 18

Which of the following is a rightful dissociation?

Accepted Answer

A partner in a partnership at will has the right to withdraw at any time, as long as they provide notice to the other partners. This is a rightful dissociation. The other options are not necessarily rightful dissociations as they may violate the partnership agreement or the terms of the partnership.

Question 19

Sandy,Ramon,and Bonnie were partners.Sandy dissociated from the partnership.Bonnie and Ramon decided to continue the business.When Sandy dissociated,there was a $50,000 debt owed to Great State Bank.Which statement is correct?

Accepted Answer

Sandy remains liable for the debts of the partnership incurred while she was a partner, even after her dissociation. Dissociation does not relieve a partner of existing partnership liabilities.

Question 20

Dusty dissociated from a partnership.To protect himself from debts of the partnership after he leaves,Dusty should

Accepted Answer

Filing a statement of dissociation with the secretary of state will give notice to third parties that Dusty is no longer a partner and therefore not personally responsible for any debts incurred by the partnership after his dissociation. This is the best way for Dusty to protect himself from future liabilities. The other options may provide some protection, but they are not as effective as filing a statement of dissociation.

Quiz 32: Partnerships