Deck 25: Sole Proprietorships and Partnerships

Question 1

Under the RUPA entity theory, a partner has the right to sue to see the partnership's records.

Answer 1

True
Explanation: Under the RUPA, these three rights are retained from UPA: (1) the right to see the firm's financial records, (2) the right to compel an accounting, and (3) the right to compel a dissolution of the entire partnership.

Question 2

Capital contributions are sums that are contributed by the partners as temporary investments which the partners are entitled to have returned, at their discretion.

Answer 2

False
Explanation: Capital contributions are sums that are contributed by the partners as permanent investments and that the partners are entitled to have returned when the partnership is dissolved. In contrast, loans or later advances that partners make to the partnership and accumulated, but undivided, profits belong to the partners on an individual basis. Other forms of partnership property belong only to the partnership in its status as an entity.

Question 3

The UPA clearly states that a partnership should be considered a separate legal entity with an existence separate from the partners.

Answer 3

False
Explanation: Although it has limitations, the UPA has been the mainstay of partnership law for more than 90 years. For example, the UPA has never made it clear whether a partnership should be considered an entity with an existence separate from the partners or whether it was in fact simply an aggregate of all of the partners. These problems, and others, motivated the creation of the Revised Uniform Partnership Act (RUPA).

Question 4

In a registered limited liability partnership (LLP), each partner is personally liable and may be sued in a separate action or in a joint action.

Question 5

Limited partners receive a return on their investment, while risking only that original investment.

Question 6

Under the RUPA, joint and several liability means that the partners can be sued individually for both partnership contracts and torts.

Question 7

A partnership is the easiest business organization to form.

Question 8

Jean and Bert enter into a written agreement to establish their partnership. Their partnership agreement must be modeled after the terms of the RUPA.

Question 9

In the Opening Case, PNC Bank vs. Michael Farinacci, the main issue was whether the defendants be held jointly liable under the old law (UPA) or jointly and severally liable under the new law (RUPA).

Question 10

Mia works as an assistant in a pharmacy. Her receipt of monthly wages, by itself, makes her a partner in the pharmacy.

Question 11

If property was obtained by a partner in his or her role as a partner, it is considered partnership property.

Question 12

Under the UPA, a tenancy in partnership means a deceased partner's interest in real property held by the partnership passed to the partner's surviving heirs.

Question 13

Under the UPA aggregate theory, a partnership exists as an individual person with its own separate identity.

Question 14

Under the RUPA, partnerships at will are automatically dissolved when a partner dies or enters bankruptcy.

Question 15

In a sole proprietorship, the owner may keep all the profits.

Question 16

Since Janine has management powers in a partnership, she is considered a managing partner in that firm.

Question 17

RUPA considers a partnership to be an entity in relation to liability.

Question 18

The RUPA requires that a partnership agreement be in writing to be enforceable among the partners.

Question 19

Louisiana was the last state to adopt the Uniform Partnership Act.

Question 20

A partnership consists of an association of two or more "persons," one of which cannot be another partnership.

Question 21

Jackie is interested in the property of the Big Partnership, in which Jackie is a full partner. She wants to mortgage the property in order to collateralize loans for the organization. However, not all the partners agree with Jackie. What is Jackie's legal position with regard to the mortgage under UPA?

A) Her partners' non-agreement is legally irrelevant.
B) Jackie's interest in the partnership property cannot be assigned.
C) Jackie can mortgage her share of the organization's property.
D) UPA does not address this issue, and a court will decide on a case by case basis.

Question 22

When forming a limited partnership, it is critical to know that:

A) general partners have limited liability for the firm's debts.
B) a certificate of limited partnership must be filed with the Secretary of State's office.
C) limited partners are participating investors.
D) general partners can only take a limited part in the management of the firm.

Question 23

Charlotte is declared mentally incompetent by a court and is unable to participate as a partner in AMLAP Enterprises. Charlotte wants to leave the AMLAP partnership, but is contractually obligated for three more years. Can Charlotte leave the AMLAP partnership?

A) Yes, she can do so without any liability to the partnership.
B) No, there is no right to leave.
C) Yes, she has a right to leave, but is liable for breach of contract.
D) No, there is no right to leave unless all the partners agree.

Question 24

Jack has an auto accident while on business for Small Enterprises, an RLLP consisting of Jack and Alex. Who is liable for damages resulting from the auto accident?

A) Small Enterprises only
B) Jack only
C) Jack and Alex only
D) Small, Jack, and Alex

Question 25

Under the RUPA, a partnership:

A) has continuity of existence.
B) is considered an entity in all situations.
C) is no longer viewed as an aggregate in relation to liability.
D) has no liability for the obligations made by its partners.

Question 26

Under the UPA, a partner in a tenancy in partnership has all the following rights except:

A) an equal right to possess and use specific partnership property for partnership purposes, but not for that partner's personal use.
B) rights in partnership property that are not subject to attachment for personal debts.
C) in the case of a partner's death, the right to have the deceased partner's interest in real property held by the partnership pass to the surviving partners.
D) the right to be a co-owner of partnership property with no interest in partnership property which can be transferred, either voluntarily or involuntarily.

Question 27

In a general partnership, which of the following is true of limited partners?

A) Limited partners take an active part in the management of the firm.
B) A limited partner's nonpartnership property can be used to satisfy any debts owed by the firm.
C) Limited partners are nonparticipating investors.
D) Limited partners have unlimited liability for the firm's debts.

Question 28

Arian is a sole proprietor and owes a number of business creditors. The business creditors may sue to:

A) only take Arian's business assets.
B) only take Arian's personal assets.
C) take both Arian's business and personal assets.
D) not take any assets, but only the profits of the business.

Question 29

A partner's ____________ is her share of the ___________ plus any ____________, which is any remaining funds after dissolution.

A) vested property right; profits; surplus
B) economic interest; profits and losses; surplus
C) property; surplus; losses
D) economic interest; surplus; vested property rights

Question 30

Alan and Delen enter into a partnership agreement with a $10,000 capital contribution. Six months later, Delen loans Alan $1,000. The loan is a:

A) partnership capital contribution.
B) loan to the partnership, rather than to Alan.
C) loan to both the partnership and to Alan.
D) personal loan Alan only.

Question 31

Which of the following is an advantage of a sole proprietorship?

A) The owner of a sole proprietorship has no liability.
B) The owner of a sole proprietorship has complete control over the business.
C) The sole proprietorship's existence does not depend entirely upon the sole proprietor.
D) Owners of sole proprietorships can raise a lot of cash quickly for expansion purposes.

Question 32

Tina is a limited partner in Aon Enterprises, a limited partnership, while Mark is a general partner. Tina assumes management duties for three weeks, while Mark is recovering from heart surgery. Most likely, who or what has liability for partnership actions during this period?

A) Aon Enterprises only
B) Mark only
C) Tina only
D) Mark and Tina

Question 33

Thomas invests $10,000 in the Thomas and Trudy partnership named Tremendous Enterprise. Thomas needs $2,000 for medical expenses and insists that he is entitled to withdraw that amount immediately from what he has invested. Trudy asserts that the $10,000 investment is partnership property. Under the RUPA, who owns the $10,000?

A) Tremendous Enterprise
B) Thomas only
C) Thomas individually and Trudy individually
D) The $10,000 is owned by no one, but is merely a future interest of Thomas

Question 34

The Titanic Partnership's loan from Big Bank is structured so that payments on the loan are made out of profits and the amounts of the payments vary according to profitability. Which of these best describes this arrangement?

A) This is evidence of a partnership between Titanic and Big Bank; additional evidence may overcome this assumption.
B) This is conclusive evidence of a partnership between Titanic and Big Bank.
C) This may be evidence of a partnership between Titanic and Big Bank.
D) This is not evidence of a partnership between Titanic and Big Bank.

Question 35

Under RUPA, a ____________ takes place whenever a partner is no longer associated with the running of the firm.

A) dissolution
B) dissociation
C) rescission
D) devolution

Question 36

Susan and Stanley are in a partnership called Easy Partnership. Susan purchases a truck with her personal funds with title to the truck naming Easy Partnership. Who owns the truck?

A) Susan
B) Susan and Stanley
C) Easy Partnership only
D) Both Susan and Easy Partnership

Question 37

The RUPA has eliminated:

A) all management rights enjoyed by partners.
B) the concept of tenancy in partnership.
C) partnership entity status.
D) each partner's interest in the firm.

Question 38

Alan and Baker are disappointed in the profitability of their A and B Partnership. They want to join their partnership with the X and Y Partnership. Is it possible for a partnership to be a partner?

A) Yes
B) No
C) Yes, if the partners agree to personally guarantee the debts of the new partnership
D) No, because a partner must be an entity

Question 39

In a limited partnership, general partners:

A) take an active part in management, but have unlimited liability for the firm's debts.
B) take an active part in management, but have no liability for the firm's debts.
C) take an active part in management, but are nonparticipating investors.
D) take no part in management, but contribute cash or property.

Question 40

John knows that The Franklin Enterprises Partnership, in which John is a partner, is interested in purchasing a particular tract of land for a business location. Can John lawfully have his aunt buy the land, so that she may resell the land to Franklin Partnership?

A) No, it violates John's duty of care.
B) Yes, assuming the price to Franklin was a fair market price.
C) No, it violates John's duty of loyalty.
D) Yes, the aunt is not a Franklin partner and has no loyalty to it.

Question 41

Morgan, Slater, and Jergenston were partners in a legal consulting partnership. Jergenston pocketed $500,000 he had solicited in bank loans for expanding the partnership. When Morgan and Slater discovered Jergenston's impropriety, Jergenston told them, "Tough luck, but as partners, we are jointly liable on this debt and must pay off the $500,000 plus interest together." Was Jergenston correct? Explain.

Question 42

Due to a typing mistake, Delta, a limited partner in Derby Limited Partnership, is identified in the certificate of limited partnership as a general partner. Discuss how this error should be corrected.

Question 43

Tangent Enterprises is a partnership consisting of Delen, Javid, and Kaya. Kaya leaves the partnership to do volunteer work in Africa. Discuss the legal status of Tangent Enterprises.

Question 44

Anita wants to go into business for herself, but does not know how to start. Discuss the best way for Anita to begin.

Question 45

Todd and Walker form a venture to operate snow cone stands in Smallville. The stands are only open for five warm weather months. The remainder of the year, Todd and Walker do no business together. Discuss the legal status of their business.

Question 46

Brylea is paid 10% of the net profits by Delta Partnership as compensation for her work for Delta. Delta ceases business, owing many creditors who attempt to collect from Brylea, asserting that Brylea is a partner. Discuss Brylea's partnership status and liability.

Question 47

Wellington and Haggerty were partners in a souvenir shop. It is a traditional general partnership. While on a regular delivery trip, Wellington caused an accident when he ran a red light. Haggerty claimed that only Wellington was liable for the injuries sustained by the other driver. Was Haggerty correct? Explain.

Question 48

A large machine is purchased by Vida and is sometimes used for her personal work and sometimes used for work by the partnership of which she is a member. Discuss what factors a court will consider in deciding if the machine is partnership property.

Question 49

Striuli asks Sarducci to become a limited partner in Avionics Ltd., a limited partnership that will sell computer software. Both Striuli and Sarducci delay filing the certificate of limited partnership. If the limited partnership is sued before the certificate is filed, will Sarducci be named as a defendant? Explain.

Question 50

Jackson, Thomas, and Susan are partners in an investment firm. There is a vote taken to sell government bonds owned by the partnership, with Thomas and Susan opposed and Jackson in favor. Jackson decides to sell the government bonds and the partnership loses $50,000. Discuss Jackson's liability to the partnership.