Deck 37: Partnerships: Termination and Limited Partnerships

Question 1

A partnership can continue after dissolution is complete.

Answer 1

True

Question 2

Which stage(s) must be completed before a partnership is considered completely terminated?

A) Dissolution only
B) Winding up only
C) Dissolution and release of claims, but not winding up
D) Release of claims and winding up, but not dissolution
E) Dissolution and winding up, but not release of claims

Answer 2

E

Question 3

When a partner dies, the partnership is terminated by an act of the court.

Answer 3

False

Question 4

In a limited partnership, the general partner has the responsibility in the management of the business.

Question 5

Partners may not engage in a business that competes with the partnership business during the winding-up process.

Question 6

In general, members of LLCs execute an agreement at the time of the LLC's formation, however, members of limited partnerships do not.

Question 7

In the case of a limited partnership, if the partners do not sign or do not file the certificate of limited partnership with the secretary of state, the limited partners will not receive limited liability.

Question 8

During the winding-up process, the partners must still fulfill their fiduciary duty to one another by disclosing all information about the partnership assets.

Question 9

In an LLC, each member has limited liability dependent on the amount of debt he or she assumes.

Question 10

After dissolution, the remaining partners have a right to continue the partnership as long as the partner that is leaving agrees to the continuation.

Question 11

In a suit alleging wrongful dissolution, if the partner dissolves a partnership in violation of the partnership agreement, they are not liable, they simply must fix the underlying issue.

Question 12

When a partnership is dissolved based upon the withdrawal of a partner, that partner no longer has actual authority to bind the partnership.

Question 13

The winding-up stage in the termination of a partnership is complete when which of the following happens?

A) When account is taken of the assets of the partnership and the assets are distributed among the partners.
B) When all assets of the partnership are sold.
C) When all partners sign releases terminating the partnership.
D) When the partnership is dissolved.
E) When all claims against the partnership by third parties are either settled or resolved in court.

Question 14

A general partner has unlimited personal liability for the debts of the limited partnership.

Question 15

Raul and Limlin are dissolving their partnership. Raul stops acting as a partner and says that this confirms the dissolution of the partnership. Limlin says that this does not dissolve the partnership. Is Limlin correct?

A) Yes, because only one partner, by choice, stopped fulfilling the role of a partner to the business and both partners must stop fulfilling their roles.
B) Yes, because Limlin has not consented to the final dissolution of the partnership.
C) No, dissolution is complete when any partner, by choice or by default, stops fulfilling the role of a partner to the business.
D) No, because thirty days after any partner, by choice or by default, stops fulfilling the role of a partner to the business this dissolves the partnership.
E) Yes, because a court will determine if the partnership is completely dissolved.

Question 16

A partner being expelled from the partnership in accordance with the partnership agreement is not a reason for rightful dissolution of the partnership.

Question 17

Which of the following may cause the dissolution of a partnership?

A) Only an act of the partners
B) Only the operation of the law
C) Only an act of the court
D) An act of the partners, operation of the law, or an act of the court
E) A partnership cannot dissolve unless there is a written agreement stating how the dissolution must occur.

Question 18

The term ________ is associated with the change in the relationship of the partners caused by any partner's ceasing to be associated with the carrying on of the business.

A) resolution
B) dissolution
C) winding up
D) removal
E) transforming

Question 19

A partnership must experience the winding-up stage, but not the dissolution stage, before the partnership may be terminated.

Question 20

After dissolution of a partnership, any partners who continue to do business cannot use the partnership's name.

Question 21

In India there are several grounds for dissolution of a firm, which of the following is not one of them?

A) agreement by all partners
B) dissolution by notice
C) compulsory dissolution
D) dissolution by the court
E) governmental intervention in the partnership

Question 22

The partnership of Fregeun, Pennell and Jones is dissolving and a dispute has arisen about which debts must be paid first. According to the UPA, who must be paid first when liquidated assets of a partnership are distributed?

A) Any investments made by the partners.
B) Any capital invested by partners.
C) Any loans made between the partners that covered the partnership.
D) Any debt owed to creditors of the partnership
E) Any bills of lading

Question 23

If, upon dissolution of a partnership, liabilities of the partnership are greater than the liquidated assets of the partnership, which of the following occurs?

A) The liabilities remain unpaid because the partners are not liable.
B) The managing partner is liable for the liabilities, but other partners are not liable.
C) Each partner must contribute his or her share of the losses to pay creditors.
D) Only partners who did not participate in the management of the business must contribute his or her share of the losses to pay creditors.
E) Only partners who participated in management of the business must contribute his or her share of the losses to pay creditors.

Question 24

When a partner dissolves a partnership in violation of the partnership agreement, this is known as ________.

A) wrongful termination
B) termination without cause
C) wrongful dissolution
D) termination at will
E) dissolution by conflict

Question 25

Which of the following was the result in the Case Opener involving whether a partner wrongfully caused dissolution of a partnership thereby barring him from recovering damages from other partners based upon improvements to an office building that were not properly approved?

A) That the partner at issue was partially at fault for the wrongful dissolution of the partnership but that he would be entitled to sue for damages because the dissolution was not entirely his fault.
B) That the partner at issue was partially at fault for the wrongful dissolution of the partnership and that he was therefore barred from recovering damages from the other partners.
C) That the partner at issue was not at fault for the dissolution of the partnership because expenditures were improperly made by the partnership and hidden from him but that he was barred from recovering damages because the partnership had not yet been wound up.
D) That the partner at issue was fully at fault for the wrongful dissolution of the partnership and that he was therefore barred from recovering damages from the other partners.
E) That the partner at issue was not at fault for the dissolution of the partnership because expenditures were improperly made by the partnership and hidden from him and that he could sue for damages based upon the wrongful acts of the other partners.

Question 26

A(n) ________ does not specify the objective or duration of the partnership in the partnership agreement.

A) partnership at will
B) partnership at sufferance
C) intermediary partnership
D) quasi partnership
E) unqualified partnership

Question 27

Which of the following was the result on appeal in Urbain v. Beierling, the case in the text in which the court decides whether or not to dissolve a partnership?

A) The appellate court reversed the dismissal of plaintiff's claims because she was a "co-owner" of partnership property and entitled to a valuation of the property.
B) The appellate court reversed the dismissal of plaintiff's claims because, although the partnership was not successful, plaintiff was entitled to a distribution of assets.
C) The appellate court remanded the case to the trial court to determine the amount of assets or profits of the partnership for distribution.
D) The appellate court affirmed the dismissal of plaintiff's claims because she failed to show she was damaged since there were no assets or profits of the partnership to distribute to her.
E) The appellate court affirmed the dismissal of plaintiff's claims because she failed to show she was a "co-owner" of the partnership.

Question 28

In Spain, which of the following is not a reason for provisional (temporary) dissolution of a partnership?

A) A partner fails to comply with provisions of the partnership agreement.
B) A partner inexplicably abandons the partnership and does not return on request.
C) A partner is declared insane and unfit to manage the business.
D) A partner is accused of fraud or mismanagement.
E) A partner exceeds his or her powers.

Question 29

Which of the following is true in regard to a partner who is unfairly accused under a provisional dissolution in Spain?

A) Provisional dissolution prevents those unfairly accused of certain behaviors from losing their position in the partnership.
B) Provisional dissolution makes it clear that the partner abandons the partnership and cannot return until requested to do so by the partnership.
C) A partner is considered to be a probationary member and still has limited controls of the partnership assets.
D) A partner that is wrongfully accused can sue the partnership for punitive damages.
E) A partner can receive limited profits but must return those profits plus interest if found to be liable for any wrongdoing.

Question 30

In Spain, there are two types of dissolutions of partnership possible: ________ and ________.

A) full dissolution and preemptive dissolution.
B) full dissolution and provisional dissolution.
C) preemptive dissolution and final dissolution.
D) partial dissolution and complete dissolution.
E) mediated dissolution and full dissolution.

Question 31

In the Case Nugget in the book, Bluestein and Krugman v. Olden, what did the court determine in regards to the winding-up of the partnership when all partners were in agreement to the dissolution of the partnership but not in agreement with the selling price of the partnership?

A) Because the partnership was terminated in accordance with the partnership agreement, the court ruled that Olden could not prevent maximization of the partnership's assets.
B) Because the partners could not agree, the court determined that it had jurisdiction to decide a selling price and distribution of partnership assets.
C) That because the defendant wanted to continue the business components of the partnership, he had right of first refusal to buy all the partnership assets at a reduced cost.
D) That the parties had a partnership agreement that was not being followed and as such, the court determined the partnership had to continue until the parties could come to an agreement and appointed a mediator to help in the process.
E) That the partnership agreement was invalid, and the entire set of assets must be sold at auction and distributed according to money invested by each partner.

Question 32

Which of the following is true regarding "provisional dissolution" of a partnership in Spain?

A) Provisional dissolution is followed by litigation to determine the legitimacy of the termination request.
B) Provisional dissolution occurs whenever a partner requests dissolution without the intervention of the court.
C) Provisional dissolution occurs whenever a party dies.
D) Provisional dissolution is the only method of dissolution of a partnership in Spain.
E) Provisional dissolution is effective for 30 days prior to actual dissolution in order to allow the parties to wind-up the partnership.

Question 33

Which of the following is true if a partner wrongfully dissolves a partnership?

A) The partner who wrongfully dissolved the partnership can require that the business be wound up.
B) The partner who wrongfully dissolved the partnership can be held liable for damages to the remaining partners.
C) The remaining partners must close the business.
D) The partner who wrongfully dissolved the business must petition the court in order to complete the process.
E) The remaining partners must petition the court in order to complete the process.

Question 34

If, upon dissolution of a partnership, one partner pays liabilities of the partnership that are greater than the liquidated assets of the partnership, which of the following is true?

A) The partner who paid has a right of contribution against any partner who did not pay.
B) The partner who paid has no right of contribution against any other partner.
C) The partner who paid has a right of contribution against other partners only if the partner who paid was not the managing partner.
D) The partner who paid has a right of contribution only against other partners who participated in the management of the partnership.
E) The partner who paid has a right of contribution only against other partners who did not participate in the management of the partnership.

Question 35

When a partnership is winding up, which of the following generally does not occur during this period?

A) completing unfinished partnership business
B) paying out of dividends to partners
C) collecting and paying debts
D) collecting partnership assets
E) taking inventory

Question 36

Which of the following is not a part of the Life Cycle of a Partnership according to the text?

A) Formation.
B) Performance.
C) Annual Dividend Sharing
D) Dissolution
E) Winding-Up.

Question 37

Which of the following is false regarding dissolution of a partnership either by act of a partner or by operation of law?

A) Death of a partner results in dissolution of a partnership by operation of law.
B) A partnership engaging in an activity that suddenly becomes illegal results in dissolution of a partnership by operation of law.
C) A partner's engagement in any other business activity results in dissolution of a partnership through an act by a partner.
D) A partner withdrawing from the partnership at will results in dissolution through an act by a partner.
E) A partner withdrawing or being expelled pursuant to the partnership agreement results in dissolution through an act by a partner.

Question 38

Which of the following is false regarding the winding-up process?

A) During the winding-up process, the partners must still fulfill their fiduciary duty to one another by disclosing all information about the partnership assets.
B) During the winding-up process, the partners may not engage in any business that competes with the partnership business.
C) If a partnership has been rightfully dissolved, any partner can demand that the winding-up stage begin.
D) If a partner wrongfully dissolves a partnership, that partner has no right to demand a winding up.
E) During winding-up, once partnership assets are gathered, they are distributed to the partners or to creditors.

Question 39

Which statement is true regarding the rights of partners to a rightful dissolution of a partnership?

A) All partners can demand that the partnership be wound-up but only the managing partner may participate in the wind-up.
B) The partners may continue the partnership upon majority vote.
C) If the partners unanimously agree, they can continue the business using the partnership's name.
D) Rightful dissolution is by act of a partner only.
E) Rightful dissolution is by act of court only.

Question 40

Which statement is correct regarding a partner's actual authority to bind a partnership once a partnership is dissolved?

A) A partner has no actual authority to bind the partnership after the partnership is dissolved.
B) A partner has actual authority to bind the partnership for 10 days after the partnership is dissolved.
C) A partner has actual authority to bind the partnership for 30 days after the partnership is dissolved.
D) A partner has actual authority to bind the partnership for 45 days after the partnership is dissolved.
E) After a partnership is dissolved, a partner has actual authority to bind the partnership to any third party who has not been given notice of dissolution.

Question 41

To ensure that a dissolving partner does not create additional liability for the partnership, which of the following is true regarding notice to be provided to a third party that has provided credit to a partnership?

A) There is no requirement that notice be provided because by law, the dissolving partner has no authority to bind the partnership.
B) The third party may be notified through advertisement in the newspaper.
C) The third party may be notified through a general post on the Internet at the partnership's website.
D) The third party must be provided direct verbal or written notice.
E) The third party must be provided written notice based on the statute of frauds.

Question 42

[Fishy Fiasco] James agreed to be a limited partner in Ingrid and Darnell's tropical fish importing business. Ingrid and Darnell were general partners. James contributed $10,000 to the partnership as his capital contribution. The partnership made a profit of $30,000 the first year. James was paid nothing. When he inquired, Ingrid told him that a limited partner was only entitled to a share of profits as approved by the general partners and that perhaps things would be better the next year. The next year, however, importation was banned because of a fish disease, and the partnership lost money and owed debts of $60,000. At the end of the year, Ingrid and Darnell asked James to contribute $20,000 to cover the debts. When James complained about the amount, Darnell told him that he and Ingrid were being overly reasonable and that James actually was legally liable for an even larger percentage. In an attempt to keep the business afloat, James told Ingrid and Darnell that they should consider suing a customer who had not paid a large account. Ingrid and Darnell replied, however, that they were morally opposed to lawsuits and that they had the final say on litigation.
Which statement is true regarding James's entitlement to sue on behalf of the partnership?

A) If the general partners fail to bring a suit on behalf of the limited partnership, the limited partner can bring the suit.
B) If the general partners fail to bring a suit on behalf of the limited partnership, the limited partner can bring suit but only after obtaining the permission of all general partners.
C) If the general partners fail to bring a suit on behalf of the limited partnership, the limited partner can bring suit but only after obtaining the permission of a majority of the general partners.
D) A limited partner has no rights to bring suit on behalf of the partnership.
E) A limited partner has a right to bring suit on behalf of the partnership only if the litigation is in an amount of over $75,000 and then only with the permission of all general partners.

Question 43

What must the general and limited partners sign and file with a secretary state to receive limited liability?

A) Articles of partnership incorporation.
B) Partnership liability insurance.
C) Certificate of Intent to Be Partners.
D) Certificate of Limited Partnership.
E) There is no formal requirement for limited partners to sign.

Question 44

What are the steps, in order, of the life cycle of a partnership?

A) Performance, formation, winding up, dissolution, termination or continuation.
B) Formation, performance, winding up, dissolution, termination or continuation.
C) Formation, performance, termination, winding up, dissolution or continuation.
D) Performance, formation, dissolution, winding up, termination or continuation.
E) Formation, performance, dissolution, winding up, termination or continuation.

Question 45

If a limited partnership is dissolved, the order in which the limited partnership's assets are distributed is as follows:

A) Payment to partners who have loaned the partnership money, payment to third-party creditors, payment to the partners according to their investments in the partnership, and payment to the partners on the basis of their shares of the profits.
B) Payment to partners who have loaned the partnership money, payment to the partners according to their investments in the partnership, payment to third-party creditors, and payment to the partners on the basis of their shares of the profits.
C) Payment to third-party creditors, payment to the partners according to their investments in the partnership, payment to partners who have loaned the partnership money, and payment to the partners on the basis of their shares of the profits.
D) Payment to third-party creditors, payment to partners who have loaned the partnership money, payment to the partners according to their investments in the partnership, and payment to the partners on the basis of their shares of the profits.
E) Payment to the partners on the basis of their shares of the profits, payment to third-party creditors, payment to partners who have loaned the partnership money, and payment to the partners according to their investments in the partnership.

Question 46

Which of the following is false regarding the dissolution of a partnership in Germany?

A) If a partner wishes to leave a partnership, he or she must give notice of his intention to do so at least six months before the end of the business year.
B) On receiving notification of a partner of his or her intent to leave the partnership, the other partners may begin placing bids for the purchase of the leaving partner's shares.
C) If remaining partners wish to continue the partnership after one leaves, that possibility must be provided for in the contract agreement to terminate the partnership.
D) If one partner leaves, the remaining partners may opt to fully dissolve the relationship.
E) All claims against the partnership are dismissed four years after termination.

Question 47

As part of the partnership agreement that Malik and Veronica make with their limited partners, Malik insists on and Veronica and the limited partners agrees to a(n) ________ that allows the continuing partners to keep partnership property and carry on the partnership business?

A) continuation agreement
B) property agreement
C) fulfillment agreement
D) carry over agreement
E) extenuating agreement

Question 48

During the dissolution of a partnership that will be continued by the remaining partners, if a noncontinuing partner holds 20% of the partnership in which the assets are valued at $10,000 how much will the partner receive assuming the noncontinuing partner has taken no wrongful action against the partnership?

A) $2,000
B) $2,000 minus any losses the noncontinuing partner's leaving caused the partnership to sustain.
C) $2,000 minus the noncontinuing partner's share of loses, if any, in the first year after dissolution.
D) $2,000 minus the noncontinuing partner's share of expenses involved with dissolution.
E) Nothing

Question 49

Markum is a partner in a partnership that is dissolving. The partnership does not notify a third party vendor of the dissolution. This means that Markum still has ________ authority to bind the partnership.

A) express
B) substantial
C) implied
D) apparent
E) no authority because of the dissolution

Question 50

Assuming the limited partnership is properly conducted, what is the maximum amount that a limited partners can be held liable for in a lawsuit against the partnership?

A) Unlimited personal liability.
B) The amount the limited partner brought into the business.
C) The level of liability insurance the partnership purchased for the partners.
D) A court would determine the amount of personal liability of a limited partner.
E) The amount allocated by statute of the state in which the partnership is domiciled.

Question 51

[Fishy Fiasco] James agreed to be a limited partner in Ingrid and Darnell's tropical fish importing business. Ingrid and Darnell were general partners. James contributed $10,000 to the partnership as his capital contribution. The partnership made a profit of $30,000 the first year. James was paid nothing. When he inquired, Ingrid told him that a limited partner was only entitled to a share of profits as approved by the general partners and that perhaps things would be better the next year. The next year, however, importation was banned because of a fish disease, and the partnership lost money and owed debts of $60,000. At the end of the year, Ingrid and Darnell asked James to contribute $20,000 to cover the debts. When James complained about the amount, Darnell told him that he and Ingrid were being overly reasonable and that James actually was legally liable for an even larger percentage. In an attempt to keep the business afloat, James told Ingrid and Darnell that they should consider suing a customer who had not paid a large account. Ingrid and Darnell replied, however, that they were morally opposed to lawsuits and that they had the final say on litigation.
Which statement is true regarding James' entitlement to share in profits?

A) During the first year of business, a limited partner is not legally entitled to a share of the profits.
B) During the first year of business, a limited partner is only entitled to a share of the profits at the discretion of the general partners.
C) A limited partner is generally entitled to a share of the profits, but during the first year of business, a limited partner is only entitled to one-half of whatever the share would normally have been.
D) During the first year of business and also in subsequent years, a limited partner has a right to share in the profits.
E) A new limited partner is only entitled share in the profits after a partnership has been successful for three consecutive years.

Question 52

[Fishy Fiasco] James agreed to be a limited partner in Ingrid and Darnell's tropical fish importing business. Ingrid and Darnell were general partners. James contributed $10,000 to the partnership as his capital contribution. The partnership made a profit of $30,000 the first year. James was paid nothing. When he inquired, Ingrid told him that a limited partner was only entitled to a share of profits as approved by the general partners and that perhaps things would be better the next year. The next year, however, importation was banned because of a fish disease, and the partnership lost money and owed debts of $60,000. At the end of the year, Ingrid and Darnell asked James to contribute $20,000 to cover the debts. When James complained about the amount, Darnell told him that he and Ingrid were being overly reasonable and that James actually was legally liable for an even larger percentage. In an attempt to keep the business afloat, James told Ingrid and Darnell that they should consider suing a customer who had not paid a large account. Ingrid and Darnell replied, however, that they were morally opposed to lawsuits and that they had the final say on litigation.
Which statement is true regarding any responsibility James has to share in losses?

A) James assumed no liability for the partnership beyond the capital he invested.
B) James has a legal obligation to share equally in losses with the general partners.
C) James would be responsible for one-half of any losses with the two general partners having liability for the other half.
D) James has no liability for losses at all.
E) James has liability for losses only if the general partners are insolvent.

Question 53

Maltese is a general partner who would like to add Penton to the partnership as a limited partner. In regard to adding Penton, which of the following is true?

A) A limited liability company once set cannot add another limited partner only general partners may be added.
B) Only the limited partners must agree to add Penton.
C) Only the general partners must agree to add Penton.
D) A general partner who wants to add a partner must have the consent of all partners in the limited partnership
E) A limited liability company is set by statute, and if Penton exceeds the statutory maximum for partners, he cannot be added.

Question 54

[Parental Involvement] Lexie and Fernando, both artists, discussed forming a partnership to paint portraits. Fernando's parents were interested in investing in the partnership, but they wanted to avoid any liability. Fernando suggested forming a limited partnership. He told Lexie and his parents that they could do it very informally, that an oral agreement was sufficient, and that the parents would be protected from liability. However, Lexie insisted that a certificate of limited partnership be filed with the secretary of state, over Fernando's objection that it was a waste of money. After a few months, Lexie and Fernando decided that they wanted to add a new partner, Melissa, to the partnership as a general partner. Melissa had some expertise in the portrait field but she had also had some scrapes with local law enforcement. Fernando's parents objected strenuously to the admission of Melissa. Lexie and Fernando took the position that the parents, as limited partners, had no say in the admission of a new partner. Fernando's father, who had an interest in painting and was concerned that the partnership was not making very much money, decided to start coming to the partnership studio to manage the business and attempt to bring it into profitability.
Was Fernando's belief that a limited partnership may be created informally through an oral agreement correct?

A) Yes, an oral agreement will suffice.
B) Fernando was partially correct. A written agreement is required, but only the general partners are required to sign it. Limited partners may agree orally.
C) Fernando was partially correct. A written agreement is required, but only the limited partners are required to sign it. General partners may agree orally.
D) Fernando was incorrect because partners must sign a certificate of limited partnership and file the certificate with the secretary of state.
E) Fernando was incorrect, and both general and limited partners must sign a document of partnership limitation that is kept on file in the primary business office of the limited liability partnership.

Question 55

Which of the following was the result in the case in the text, Jack A. Kahn and Denise W. Kahn v. Stewart Mesher and Lieselotte Mesher, the case in which it was claimed that in winding down a partnership, a defending partner wrongfully profited by failing to make appropriate disclosures to other partners regarding an offer to purchase property held by the partnership?

A) That the defending partner breached his fiduciary duty.
B) That the defending partner had no liability because his fiduciary obligations ended when the winding-up process started.
C) That although the defending partner had fiduciary obligations, those obligations were not breached.
D) That the complaining partner and defending partner were both guilty of breach of fiduciary obligation and were, therefore, estopped from suing each other.
E) That the complaining partner had wrongfully caused dissolution of the partnership and was, therefore, estopped from complaining about actions of the defending partner.

Question 56

According to the Revised Uniform Limited Partnership Act, which of the following is not a reason for which a limited partnership can be dissolved?

A) The expiration of the term established in the certificate of limited partnership.
B) The completion of the objective established in the certificate.
C) The withdrawal of the general partner (unless the certificate establishes that other general partners will continue).
D) An act of the court.
E) The written consent of a majority of all partners (limited and general).

Question 57

Which of the following helps govern and guide limited partnerships?

A) Revised Uniform Limited Partnership Act
B) Limited Liability Partnership Act
C) Special Liability Partnership Act
D) Uniform Organization of Partners Act
E) Limited Partnership Act of 2010

Question 58

Which of the following is true in regard to the Uniform Limited Liability Company Act?

A) Limited liability companies must follow the act completely in order to be recognized on a national level.
B) Because LLCs are relatively new, not many states have accepted the Uniform Limited Liability Company Act.
C) Limited liability companies can choose to follow the Act or not, however to get federal tax breaks, LLCs must follow the Act.
D) The Uniform Limited Liability Company Act sets out the parameters for doing business on the internet.
E) Limited liability companies are treated the same as limited partnerships under the Act.

Question 59

Where did the concept of the limited partnership originate?

A) China
B) The United States
C) Switzerland
D) Europe
E) Austria

Question 60

A limited partnership is an agreement between ________

A) at least one general partner and one limited partner
B) at least one general partner and two limited partners
C) at least two general partners and one limited partner
D) at least two general partners and two limited partners
E) each state sets the amount of general and limited partners by statute.

Question 61

[Parental Involvement] Lexie and Fernando, both artists, discussed forming a partnership to paint portraits. Fernando's parents were interested in investing in the partnership, but they wanted to avoid any liability. Fernando suggested forming a limited partnership. He told Lexie and his parents that they could do it very informally, that an oral agreement was sufficient, and that the parents would be protected from liability. However, Lexie insisted that a certificate of limited partnership be filed with the secretary of state, over Fernando's objection that it was a waste of money. After a few months, Lexie and Fernando decided that they wanted to add a new partner, Melissa, to the partnership as a general partner. Melissa had some expertise in the portrait field but she had also had some scrapes with local law enforcement. Fernando's parents objected strenuously to the admission of Melissa. Lexie and Fernando took the position that the parents, as limited partners, had no say in the admission of a new partner. Fernando's father, who had an interest in painting and was concerned that the partnership was not making very much money, decided to start coming to the partnership studio to manage the business and attempt to bring it into profitability.
Which statement is true regarding the issue of Fernando's father deciding to manage the partnership?

A) Before he can undertake management duties, he must get the approval of at least one half of all general and limited partners.
B) There is no effect on the partnership agreement.
C) He may be involved in all matters of management except strategic planning.
D) He may be involved in management; but, as a limited partner, he may not be paid additional amounts for doing so.
E) As a limited partner, he may not be involved in management and retain limited liability.

Question 62

[Big Spender] Ryan was a partner in ZYX law firm. He decided to withdraw from the partnership because he wanted to retire early in Costa Rica. The partnership agreement of ZYX law firm did not specify the objective or duration of the partnership. Although Ryan gave proper notice, the other partners claimed that he had no right to withdraw. Ryan was angry and decided to get even. Two days after he withdrew and before the partnership had provided notification to any suppliers of his departure, Ryan went to the office supply store at which he typically purchased supplies on account for the firm. He purchased several cameras, a computer, and other items, which he placed on the firm's account. Ryan just smiled when Joe, the manager at the store, told Ryan that he really appreciated the law firm's business. The next day Ryan headed for Costa Rica and cannot be located. Joe later requests that ZYX firm pay the bill for Ryan's purchases. The law firm, whose members had decided to continue the partnership after the dissolution resulting from Ryan's resignation, refused on the basis that Ryan had no authority to make the purchases. Joe says that he did not know that and that he expects to be paid immediately.
Which statement is true regarding whether the law firm is liable for purchases made by Ryan?

A) The law firm is liable for the purchases because it had not provided notification to the office supply that Ryan was no longer authorized to make purchases for the firm.
B) The law firm is liable for the purchases because Ryan's authority continued for seven days after his resignation.
C) The law firm is liable for the purchases because Ryan's authority continued for ten days after his resignation.
D) The law firm is liable for the purchases only if Ryan was treated inequitable during the winding-up process.
E) The law firm is liable for the purchases only if Ryan cannot be found within one year of the date the purchases were made.

Question 63

[Big Spender] Ryan was a partner in ZYX law firm. He decided to withdraw from the partnership because he wanted to retire early in Costa Rica. The partnership agreement of ZYX law firm did not specify the objective or duration of the partnership. Although Ryan gave proper notice, the other partners claimed that he had no right to withdraw. Ryan was angry and decided to get even. Two days after he withdrew and before the partnership had provided notification to any suppliers of his departure, Ryan went to the office supply store at which he typically purchased supplies on account for the firm. He purchased several cameras, a computer, and other items, which he placed on the firm's account. Ryan just smiled when Joe, the manager at the store, told Ryan that he really appreciated the law firm's business. The next day Ryan headed for Costa Rica and cannot be located. Joe later requests that ZYX firm pay the bill for Ryan's purchases. The law firm, whose members had decided to continue the partnership after the dissolution resulting from Ryan's resignation, refused on the basis that Ryan had no authority to make the purchases. Joe says that he did not know that and that he expects to be paid immediately.
Which statement is true regarding whether Ryan had actual authority to bind the partnership in regard to his purchases at the office supply store?

A) Ryan did not have actual authority to bind the partnership.
B) Ryan had actual authority to bind the partnership because the law firm had not notified anyone at the office supply that he was no longer authorized to make purchases for the law firm.
C) Ryan had actual authority to bind the partnership so long as the purchases were made within seven days of his resignation.
D) Ryan had actual authority to bind the partnership so long as the purchases were made within ten days of his resignation.
E) Ryan had actual authority to bind the partnership only if he cannot be found within one year of the date the purchases were made.

Question 64

[Big Spender] Ryan was a partner in ZYX law firm. He decided to withdraw from the partnership because he wanted to retire early in Costa Rica. The partnership agreement of ZYX law firm did not specify the objective or duration of the partnership. Although Ryan gave proper notice, the other partners claimed that he had no right to withdraw. Ryan was angry and decided to get even. Two days after he withdrew and before the partnership had provided notification to any suppliers of his departure, Ryan went to the office supply store at which he typically purchased supplies on account for the firm. He purchased several cameras, a computer, and other items, which he placed on the firm's account. Ryan just smiled when Joe, the manager at the store, told Ryan that he really appreciated the law firm's business. The next day Ryan headed for Costa Rica and cannot be located. Joe later requests that ZYX firm pay the bill for Ryan's purchases. The law firm, whose members had decided to continue the partnership after the dissolution resulting from Ryan's resignation, refused on the basis that Ryan had no authority to make the purchases. Joe says that he did not know that and that he expects to be paid immediately.
ZYX law firm was what type of partnership?

A) A partnership at will
B) An equitable partnership
C) An absolute partnership
D) A terminable partnership
E) An agency partnership

Question 65

[Software Dispute] Cole, Kyra, and Morton are partners in a startup company that designs software for the biotechnology industry. Their partnership agreement contained a provision that the partnership would be dissolved when Morton retires, or if any partner commits any act that violates the trust of the other partners. The partnership agreement also provided that all intellectual property related to the business of the partnership, including any patents, be owned by the partnership. Cole decides to open another company, ColeCompany, that would design gaming software. He sets up the company secretively, transfers a patent owned by the partnership to ColeCompany, and does not tell his partners until he is ready to do business at ColeCompany. When Kyra and Morton find out that Cole went behind their backs and opened another business, they tell Cole they can no longer trust him and are dissolving the partnership because of his actions. Cole, who is the software designer for the partnership, tells them if they want to dissolve the partnership, then he will also design software for the biotech industry at ColeCompany.
Can Cole design software for the biotech industry at ColeCompany while the partnership is winding-up?

A) No, during the winding-up phase, a partner cannot engage in a business that competes with the partnership.
B) No, a partner may never engage in a business that competes with the partnership.
C) Yes, during the winding-up phase, a partner can engage in a business that competes with the partnership as long as he discloses all the information about the partnership assets.
D) Yes, during the winding-up phase, a partner can engage in a business that competes with the partnership.
E) Yes, during the winding-up phase, a partner can engage in a business that competes with the partnership as long as he still fulfills his fiduciary duty to the partnership and discloses all the information about the partnership assets.

Question 66

[Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company.
Is Martin correct that they will lost the protection of limited liability if Bruno ceases participating in management decisions?

A) Yes, an owner must give up his right to participate in management in order for an LLC to obtain limited liability.
B) Yes, like a limited partnership, there is no limited liability unless Bruno is a limited member.
C) No, an owner does not have to give up his right to participate in management in order for an LLC to obtain limited liability.
D) Yes, if an LLC member who participated in management chooses to give up this right, the LLC could lose protection.
E) Martin would be correct if Bruno seeks dissolution.

Question 67

[Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company.
Is Martin correct that Bruno can be a limited LLC member but would not have any say in the company?

A) No, in general, each member of an LLC may have a say in the management of the company.
B) Yes, like a limited partnership, an LLC can have limited partners and general partners.
C) Although an LLC does not have limited partners and general partners, one can be a limited member without any say in the company.
D) Yes, like a limited partnership, only the general members of an LLC make management decisions.
E) Martin is correct.

Question 68

Tino, Jesse, Aldo, and Inez have a partnership. Tino and Jesse are general partners and the others are limited partners. Tino wants to add his cousin Manny to the partnership. Whose consent does Tino need to add Manny?

A) He does not need consent to add another limited partner.
B) Only Jesse, unless Manny will be a general partner, then he needs consent of all partners.
C) He needs a majority of the partners to add another partner.
D) Only Jesse, because Aldo and Inez are limited partners
E) Jesse, Aldo, and Inez.

Question 69

[Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company.
Is Martin correct that Bruno can be a limited LLC member but would not have any say in the company?

A) No, each member of an LLC has a say in the management of the company.
B) Yes, like a limited partnership, an LLC can have limited partners and general partners.
C) Although an LLC does not have limited partners and general partners, one can be a limited member without any say in the company.
D) Yes, like a limited partnership, only the general members of an LLC make management decisions.
E) Martin is correct.

Question 70

[Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company.
Is Bruno correct that they would both be equally liable?

A) Bruno is incorrect, they are liable to the extent of the loans, if any, that they executed on behalf of the LLC.
B) Bruno is incorrect, they are liable to the extent of their investment.
C) Bruno is incorrect, they are liable to the extent of their participation in management.
D) Bruno is incorrect, they are liable to the extent of the statutory percentage based on a calculation of risk.
E) Bruno is correct.

Question 71

Pietro and Avana have a partnership importing exotic birds from South America. Congress passes a law prohibiting the importation of birds. Does the law have any effect on the partnership?

A) The partnership can continue to do business because it existed before the law was passed.
B) The partnership has 90 days to continue to operate.
C) The partnership is automatically dissolved by act of court.
D) The partnership is automatically dissolved by operation of law.
E) No.

Question 72

If the bank loan cannot be paid off after sale of the partnership assets, who is liable for the remainder of the loan?

A) No one is liable for the remainder of the loan because the partnership is dissolved.
B) The debt is automatically split between Ava and Hiro.
C) All three partners equally, but Ava may not pay Milton's share of the debt.
D) All three partners equally, but Ava may pay Milton's share of the debt.
E) Ava, if she continues the partnership after dissolution.

Question 73

[Candy Company] Milton, Ava, and Hiro own a candy company. The business is failing and Milton is declared bankrupt by the bankruptcy court. Ava wants to keep the business running because she is sure she can turn it around. Hiro tells her that, it's too late, the partnership is already over because of Milton. Ava tells him that no one has asked to end the partnership so they do not have to dissolve. The partnership debts include a loan to the bank, loans Ava made to the company, and the initial capital that all three partners invested. Milton has no money to pay any of their debts.
Is Ava correct that they do not have to dissolve the partnership?

A) No, the partnership has been dissolved by act of the court because Milton was adjudicated bankrupt.
B) No, the partnership has been dissolved by operation of law because Milton was adjudicated bankrupt.
C) No, the partnership has been dissolved by Milton because Milton was adjudicated bankrupt.
D) Yes, because the partners have not agreed to end the partnership.
E) Yes, because Ava wants to continue doing business.

Question 74

[Candy Company] Milton, Ava, and Hiro own a candy company. The business is failing and Milton is declared bankrupt by the bankruptcy court. Ava wants to keep the business running because she is sure she can turn it around. Hiro tells her that, it's too late, the partnership is already over because of Milton. Ava tells him that no one has asked to end the partnership so they do not have to dissolve. The partnership debts include a loan to the bank, loans Ava made to the company, and the initial capital that all three partners invested. Milton has no money to pay any of their debts.
In what order should the partnership's debts be paid?

A) The bank loan, then the loan to Ava, then the capital to the partners.
B) The bank loan, then the capital to the partners, then the loan to Ava.
C) The loan to Ava, then the bank loan, then the capital to the partners.
D) The capital to the partners, then the bank loan, then the loan to Ava.
E) The order of payment of debts does not matter.

Question 75

Oslo and Faraya want to form a partnership. Oslo is very ill and they verbally agree that Faraya can continue the business after his death. What type of agreement should they execute in order to ensure that Faraya can keep the partnership property and carry on the business after Oslo's death?

A) Contingent agreement.
B) Honorable agreement.
C) Continuation agreement.
D) Post-death agreement.
E) There is no such agreement.

Question 76

[Software Dispute] Cole, Kyra, and Morton are partners in a startup company that designs software for the biotechnology industry. Their partnership agreement contained a provision that the partnership would be dissolved when Morton retires, or if any partner commits any act that violates the trust of the other partners. The partnership agreement also provided that all intellectual property related to the business of the partnership, including any patents, be owned by the partnership. Cole decides to open another company, ColeCompany, that would design gaming software. He sets up the company secretively, transfers a patent owned by the partnership to ColeCompany, and does not tell his partners until he is ready to do business at ColeCompany. When Kyra and Morton find out that Cole went behind their backs and opened another business, they tell Cole they can no longer trust him and are dissolving the partnership because of his actions. Cole, who is the software designer for the partnership, tells them if they want to dissolve the partnership, then he will also design software for the biotech industry at ColeCompany.
Was the partnership rightfully dissolved or wrongfully dissolved?

A) Wrongfully dissolved, unless Morton is also retiring.
B) Rightfully dissolved because, by his actions, Cole withdrew from the partnership at will.
C) Rightfully dissolved because the partnership agreement dictated that a partner can be expelled for theft, and by placing the patent in his company's name he committed theft against the partnership.
D) Wrongfully dissolved because Cole offered to return the software.
E) Wrongfully dissolved because the partnership agreement does not permit dissolution under these circumstances.

Question 77

[Parental Involvement] Lexie and Fernando, both artists, discussed forming a partnership to paint portraits. Fernando's parents were interested in investing in the partnership, but they wanted to avoid any liability. Fernando suggested forming a limited partnership. He told Lexie and his parents that they could do it very informally, that an oral agreement was sufficient, and that the parents would be protected from liability. However, Lexie insisted that a certificate of limited partnership be filed with the secretary of state, over Fernando's objection that it was a waste of money. After a few months, Lexie and Fernando decided that they wanted to add a new partner, Melissa, to the partnership as a general partner. Melissa had some expertise in the portrait field but she had also had some scrapes with local law enforcement. Fernando's parents objected strenuously to the admission of Melissa. Lexie and Fernando took the position that the parents, as limited partners, had no say in the admission of a new partner. Fernando's father, who had an interest in painting and was concerned that the partnership was not making very much money, decided to start coming to the partnership studio to manage the business and attempt to bring it into profitability.
Are Fernando and Lexie correct that limited partners have no say regarding the admission of new partners?

A) No, because in order to add a new partner, all partners, including limited partners, must agree.
B) No, because in order to add a new partner, all general partners must agree and at least one half of limited partners must agree.
C) No, because in order to add a new partner, at least one half of general partners and one half of limited partners must agree.
D) They are correct only if all general partners agree that limited partners cannot vote on the matter.
E) They are correct.

Question 78

Which of the following is true about an LLC?

A) To obtain limited liability, owners must give up some of their rights to participate in management.
B) The structure of management must adhere to statutory constraints.
C) Owners are referred to as partners.
D) Generally, each member may be allowed to participate in the management of the company
E) Members are not equally involved in the management of the company.

Question 79

In which phase during the life of a partnership are the partners involved in collecting assets and taking inventory?

A) Formation
B) Performance
C) Dissolution
D) Winding Down
E) Termination

Question 80

[Software Dispute] Cole, Kyra, and Morton are partners in a startup company that designs software for the biotechnology industry. Their partnership agreement contained a provision that the partnership would be dissolved when Morton retires, or if any partner commits any act that violates the trust of the other partners. The partnership agreement also provided that all intellectual property related to the business of the partnership, including any patents, be owned by the partnership. Cole decides to open another company, ColeCompany, that would design gaming software. He sets up the company secretively, transfers a patent owned by the partnership to ColeCompany, and does not tell his partners until he is ready to do business at ColeCompany. When Kyra and Morton find out that Cole went behind their backs and opened another business, they tell Cole they can no longer trust him and are dissolving the partnership because of his actions. Cole, who is the software designer for the partnership, tells them if they want to dissolve the partnership, then he will also design software for the biotech industry at ColeCompany.
Which of the partners can demand that the winding up process begin?

A) Any of the partners.
B) Only Cole.
C) Kyra or Morgan, because Cole demanded dissolution.
D) Kyra or Morgan, because Cole is operating a competing business.
E) By law, the winding up process begins thirty days after dissolution, thus no partner can demand that the winding up process begin.