Question 1

Family limited partnerships are designed solely for estate planning and asset distribution for wealthy families.

Accepted Answer

Family limited partnerships allow wealthy families to avoid certain estate taxes by distributing assets from the larger estates to the smaller estates of heirs, favorably adjusting the market value of the assets.

Question 2

Under the Revised Uniform Limited Partnership Act, limited partners may act as consultants and may contribute their expertise to the limited partnership.

Accepted Answer

Limited partners may act as consultants and may contribute their expertise to the limited partnership but may not manage the enterprise or supervise employees.

Question 3

A limited partnership is required to have two or more limited partners.

Accepted Answer

Only one limited partner is required along with one or more general partners.

Question 4

Mike is a limited partner in Big Blue, LP. The partnership agreement permits him to have a say in the removal of general partners and the blocking of new partners. This agreement will jeopardize his limited partner status.

Accepted Answer

These activities are permitted as long as Mike does not participate in day-to-day management activities.

Question 5

A limited partnership is formed by the limited partner's filing of a certificate of limited partnership with the appropriate state government authority.

Accepted Answer

A limited partnership is formed by the general partner's filing of a certificate of limited partnership with the appropriate state government authority.

Question 6

Family limited partnerships are designed for parents and children to operate a business together while protecting family-related assets.

Accepted Answer

Family limited partnerships are designed for estate planning protection and not for business purposes.

Question 7

An advantage of operating as a sole proprietorship is that personal liability for any business losses is limited to the owner's investment in the business.

Accepted Answer

A disadvantage of the sole proprietorship is that the owner is personally liable for the entity's debts beyond the owner's initial investment.

Question 8

In the absence of an agreement to the contrary, the Revised Uniform Partnership Act mandates that general partnership profits be split equally among the partners.

Accepted Answer

An agreement will control; however, in the absence of an agreement the RUPA directs that profits be shared equally.

Question 9

To date, every state in the union has adopted the Revised Uniform Partnership Act except the state of Louisiana.

Accepted Answer

Only about 40 states have adopted the RUPA.

Question 10

With regard to dissociation and dissolution, the Revised Uniform Partnership Act adopted and reserved the same general rules and procedures as its predecessor, the Uniform Partnership Act.

Accepted Answer

The UPA called for termination of the business entity, while RUPA encourages the entity to continue in existence.

Question 11

Franchises are regulated by a franchise agreement.

Accepted Answer

Franchises are regulated by the Federal Trade Commission (FTC), which aims to ensure full disclosure of all information relating to a franchise company prior to a franchisee investment.

Question 12

The Revised Uniform Limited Partnership Act requires that there be a written partnership agreement regarding limited partnerships.

Accepted Answer

Written agreements are customary; however, in their absence the RULPA will apply.

Question 13

Robert and Philip are operating a general partnership. Under the Revised Uniform Partnership Act, if Robert rightfully or wrongfully dissociates from the partnership, the partnership continues to exist.

Accepted Answer

Normally RUPA allows a partnership to continue after a partner dissociates from the entity; however, in this case the entity terminates because a partnership requires two or more people.

Question 14

A sole proprietorship automatically is dissolved when the owner dies.

Accepted Answer

By implication, since the sole proprietorship is owned and managed by an individual, when the individual dies, the entity dies, although an heir may continue the business as his or her own sole proprietorship.

Question 15

In United States v. Morton, Morton was declared a general partner despite all paperwork, including tax returns, naming her as a limited partner because of her conduct.

Accepted Answer

Morton's conduct overruled any written descriptions of her relationship.

Question 16

One disadvantage of a sole proprietorship business entity is that it is restricted to a single location and cannot expand.

Accepted Answer

Sole proprietorships may operate in multiple locations.

Question 17

If a limited partner actively participates in day-to-day management of the business, he or she may forfeit limited partner status and lose limited liability for debts and liabilities.

Accepted Answer

Limited partners may not manage the day-to-day affairs of the business, and if they do, they could be treated as general partners.

Question 18

Sole proprietorships may sell equity in the company in order to raise funds.

Accepted Answer

By its very nature, a sole proprietorship may not sell equity in the company in order to raise funds.

Question 19

If a sole proprietorship loses money, the principal may deduct the losses from her or his own personal tax liability, if any.

Accepted Answer

Profits or losses reflect on the principal's personal taxes, as the sole proprietorship pays no taxes itself.

Question 20

If someone successfully sues a sole proprietorship, he or she must exhaust the businesses assets before going after the principal's personal assets.

Accepted Answer

The business's assets must be exhausted before personal assets may be attacked.

Quiz 14: Choice of Business Entity, Sole Proprietorships, and Partnerships