Deck 26: Sole Proprietorships and Partnerships

Question 1

Which of the following is NOT true about partnerships?

A) Personal creditors of the individual partner have first call against partnership assets.
B) Dower rights do not apply to partnerships.
C) A partnership may be sued in the firm's name and, upon exhaustion of assets the plaintiff may now go against the personal assets of any of the partners.
D) A partnership is sometimes treated as a separate entity.
E) Generally, a person is liable only for the obligations of a partnership created while he is a member of the firm.

Answer 1

A

Question 2

A change in the nature of the partnership

A) requires prior notification to the Registry Office.
B) is equivalent to the formation of a new partnership.
C) requires agreement, oral or written, by all existing partners.
D) is considered a conventional matter as related to the partnership business.
E) requires consent, in writing, at a formal business meeting.

Answer 2

C

Question 3

Of the following, which is an implied relationship between partners?

A) Interest on loans to partnership by a partner.
B) Equal share in profits and losses.
C) Firm pays each partner for his business expenses.
D) No partner is entitled to remuneration for acting in the partnership business.
E) all of the above

Answer 3

E

Question 4

A partnership agreement falls under the Statute of Frauds

A) if it is to be dealing with real property.
B) since memories will fade and a written record is essential.
C) if by its terms it extends beyond one year and performance has not begun.
D) since it involves the formation of a company.
E) if it is to last longer than a year.

Question 5

In 1890, the British Parliament passed the Partnership Act. This Act

A) was the result of a well- developed body of existing statutes.
B) made it difficult to discover the broader principles of partnership law.
C) has had many court cases involving its interpretation.
D) codified the existing law.
E) has changed frequently from its original form.

Question 6

For the last 14 months Greer has been a junior partner in a Vancouver law firm. Until now he was receiving a monthly salary of $5000. Senior partners have just decided to stop all salaries because of a pending lawsuit against the firm. It was determined the firm would not make profits for at least the next eight months. Is the firm obliged to continue Greer's salary?

A) No, since partners can only be paid out of profits.
B) Yes, since salaries are an expense that comes off before profits are figured.
C) Yes, since salaries are the first call on the firm's profits.
D) No, since the firm cannot claim the doctrine of frustration.
E) Yes, since Greer has a wife and kids that are dependant on the salary for basic living expenses.

Question 7

Fred is a partner in a land development partnership. He has learned independently of an opportunity to pursue a land development project with Nelly. Nelly refuses to be involved in business with Fred if he associates his partnership in the project. Nellie will do business with Fred only if he is independent of his partners. Fred will have no liability to his partners if:

A) he is careful to inform any third parties with whom he and Nellie do business that he is not acting on behalf of the partnership
B) no damages are suffered by the partnership
C) he keeps the opportunity secret
D) he ensures that anything he does on the project is outside office hours
E) none of the above will protect Fred from liability

Question 8

Timothy worked on the Salmon Queen fishing trawler off the coast of British Columbia last summer. He was paid according to the profits the boat made from each week's catch. In the legal sense, Timothy is

A) a partner with the others in the crew.
B) an employee getting paid on the basis of the employer's profits.
C) getting commissions as defined by the owner.
D) working under contract for the boat's owner.
E) a limited partner, not having the usual partnership liability.

Question 9

Joan and Ann started a small pie shop located just inside the side entry of The Diamond Restaurant. All the working capital and equipment was supplied by Joan, but they both worked at the business full time for five months. Neither one took any wages and when they finally liquidated Joan claimed Ann ought to pay half of the remaining indebtedness. Ann, after consulting with her lawyer, claims she won't pay any of the business debts because

A) only investors would participate in the liquidation of assets and the payment of debts.
B) even though a partner, it is implied that Joan would take all business losses.
C) even though a partner, she has no funds and therefore cannot pay.
D) she was an employee, therefore would not be liable.
E) she wasn't a legal partner and therefore is not liable.

Question 10

Which of the following would be considered a business partnership?

A) Two people own property and collect rent from tenants.
B) Two entrepreneurs jointly develop an invention.
C) Three B.C. merchants pool orders to fill a trans- Canada truck.
D) Farmer Green is share cropping with a land owner in Alberta.
E) A group of investors form a syndicate to buy a portfolio of securities.

Question 11

Usually the sharing of profits is an indication of a partnership. In which of the following situations will this be TRUE?

A) to pay the seller of a business an amount for goodwill varying with the profits
B) to pay an employee as part of his remuneration
C) to pay the spouse of a deceased partner an annuity
D) to repay a debt owed
E) none of the above

Question 12

You do not trust your partners and are concerned about liabilities you may incur if you continue to associate with them in business. To ensure that you are safe from any future liability toward third parties that did business with the partnership while you were a partner, you should:

A) sell your partnership interest to someone else.
B) get your partners to sign an acknowledgement that you will not be responsible towards third parties that have a claim against the partnership
C) retire and send a notice to all third parties who did business with the partnership
D) retire and place a legal notice in the official provincial government publication
E) none of the above will protect you

Question 13

Which of the following is TRUE about sole proprietorships?

A) Just as corporations, they must abide by human rights legislation and meet health and safety regulations for the employees.
B) Sole proprietorships require government formalities to get established.
C) Business names of all sole proprietorships must be registered.
D) Generally they are subject to different regulations than are other forms of business.
E) Sole proprietorships comprise the smallest number of businesses in Canada.

Question 14

Carter, a partner in a financial planning firm, solicited a client without reporting it to the firm. He used the letterhead, business cards, and facilities of the firm. He then defrauded the client out of $138,000 and left for Honduras. Will the firm be liable to this client?

A) No, since Carter was breaking his fiduciary duty to the other partners.
B) Yes, because the firm could then go after Carter and collect for its loss.
C) No, since this act to defraud is illegal and partners do not have to support illegal acts.
D) Yes, since all partners are responsible for "any wrongful act" of another partner.
E) Yes, since Carter was working without apparent authority.

Question 15

Two years ago the Citizens Bank lent The Carlin & Hickel Partnership two million dollars. Now the firm is defaulting on their monthly payments. Which of the following partners will be liable on this loan?

A) a person who is not actually a partner, but is currently allowing himself to be represented as a partner so the firm can refinance this Citizens Bank loan
B) all six limited partners
C) a partner that died six months ago
D) a partner who has been with the firm for less than two years
E) a partner that retired from the firm last summer and obtained, through novation, a liability release from this loan

Question 16

For a partnership to bring a liability suit against a client, it would need to sue or conversely, it might be sued by the client .

A) in its own name; using the full partnership's name
B) in the names of all full partners; using each partner's name
C) any partner, usually one with deep pockets; using their registered name
D) the partnership as a whole; using any partner's name
E) collectively; in tort of deceit

Question 17

Chico and Amos decide to be partners in the storage and delivery business. Chico has some land with buildings to contribute, and Amos has a large van and a small truck to contribute. After two years (and sharing profits equally), they decide that the business is not worth all the trouble, so they liquidate. The land and buildings bring $45,000 and the two vehicles bring $7,000. How should the proceeds be divided?

A) It depends on whether they want to remain friends.
B) It all depends on their original intentions as to what was partnership property.
C) Chico should get the $45,000.
D) Since they are equal partners, they should each get $26,000.
E) In absence of a clear agreement, the Partnership Act gives each back their original investment.

Question 18

A partnership is treated as a separate entity as far as

A) passing it on to heirs.
B) its ability to exist independent of its owners.
C) having its own assets and liabilities.
D) bankruptcy is concerned.
E) the paying of income taxes.

Question 19

Which one of the following statements is TRUE regarding partnerships?

A) The law recognises only those partnerships that are formed by the express (written or verbal) agreement of two or more parties.
B) A partner is liable for the torts of other partners during the ordinary course of business.
C) If there are more than two parties in a partnership, a majority vote is not only sufficient but also a requirement in making decisions.
D) A limited partnership is where none of the partners can be held liable beyond a certain limit.
E) A partnership exists wherever two or more parties carry on transaction jointly.

Question 20

The greatest risk of liability to which a partner subjects himself results from

A) negligence or other torts of the firm's partners.
B) failure to create a binding partnership agreement under the Partnership Act.
C) possible contractual obligations of the partnership.
D) illegal activities of other partners.
E) personal liabilities incurred by the other partners.

Question 21

Partners have a fiduciary duty one to another. This might take the form of

A) giving the partnership the first right of refusal on personal investments.
B) competing with the partnership with some similar type of business.
C) rendering to the other partners true accounts and full information of all things affecting the partnership.
D) accounting to the firm for any benefits derived from transactions outside the realm of the partnership.
E) looking after one another's health and welfare.

Question 22

Johnson, Michael & Associates is a partnership of accountants. One evening, Bosco, the truck driver for the firm, during the course of performing his duties, gets into an accident with James. James is injured and later commences a personal injury action against the partnership. James obtains judgment of $250,000 against the partnership. The partnership is not insured and has only $150,000 in its account. James may recover the balance of $100,000 from the personal assets of any of the individual partners.

Question 23

What are the advantages of carrying on a business venture as a partnership rather than as a sole proprietorship?

Question 24

Helen and George formed an equal partnership for the raising of flowers to sell at the county fair. After three seasons of mediocre results, George lost interest and only came around to "see how things were going". However, the fourth summer went very well for Helen and she made a large profit. Can George now claim half the profits?

A) No, since George did very little to manage or help in the business.
B) No, since the partnership was dissolved by estoppel.
C) Yes, since the ratio for dividing of the profits cannot be changed.
D) No, because with Helen's application, the court will dissolve this partnership.
E) Yes, since neither partner terminated the partnership.

Question 25

Jack wants to establish a partnership with Mary. Mary does not want to be in the partnership with Jack. Jack does not really need Mary's agreement to be in the partnership before a partnership is created. All that he has to do is create the documents and register the partnership, naming Mary as a partner.

Question 26

Lou, Pete, and Carl are all partners in a feed store business. Carl would like to retire but wants his son, Carl Jr., to take his place as partner. Is there any way Carl can have his son become a partner ?

A) Only by getting agreement from any two existing partners.
B) No, because it's only Carl's profits that can be assigned.
C) Yes, with the consent of all existing partners.
D) Yes, by bringing Carl Jr. in as manager and then working him into a partner position.
E) Yes, since partnership positions can be transferred through assignment.

Question 27

Which of the following statements about a limited partnership is CORRECT?

A) Registration of a limited partnership is not required.
B) A limited partner has unlimited liability if that partner fails to make a required equity contribution.
C) Limited partnerships must have at least one limited partner and at least two general partners.
D) The designated limited partner can manage the partnership at any time.
E) Any limited partner who takes an active part in the management of the partnership incurs unlimited liability.

Question 28

Three men decided to form a partnership to look for buried treasure. Luke and Mark had expensive equipment, experience, and expertise; but the third partner, Cyrus, had a treasure map. Cyrus had his holidays start a few days earlier than the other two, so he went ahead "to set up camp". Low and behold, before the others arrived, Cyrus found the treasure. So when they did arrive, he immediately dissolved the partnership and claimed the entire treasure for himself. Do Luke and Mark have any legal claim to the treasure?

A) Yes, the treasure was found before the partnership was dissolved.
B) Yes, because Cyrus has both possession and the upper hand.
C) No, the partnership was dissolved before the treasure was made known.
D) No, Luke and Mark's assets were not used to find the treasure.
E) Yes, they have a fiduciary duty to take their share.

Question 29

A Partnership has no independent existence in law.

Question 30

A share of gross receipts is an indication of partnership.

Question 31

An unincorporated business that is usually owned by one person is called a Partnership.

Question 32

Mike, James and Mary, advertizing consultants, enter into a partnership called "Sensational Adverts". About a year after the partnership is established, Mike and Mary have an argument and Mike tells the other partners that he will soon be leaving the partnership. A week later, "Sensational Adverts" is invited to submit a bid to produce an advert for a local beer company. Mike, who is the member of the partnership in charge of beer adverts, sees this as an opportunity to start his own business. Mike resigns from "Sensational Adverts" , starts his own company, and then submits a bid. Mike's bid is accepted. Mike's conduct is a breach of his fiduciary duties.

Question 33

A partnership is a business relationship between two or more persons, but not all business relationships between two or more persons are partnerships.

Question 34

If there is no explicit partnership agreement, each partner will share in the profits of the partnership according to that partner's proportionate capital contribution.

Question 35

No formal registration is required to bring a Limited Partnership into existence.

Question 36

A contractual joint venture differs from a partnership in that

A) profits are retained jointly for use in another project.
B) there is a fiduciary relationship between the participants.
C) it pools assets and expertise for a business endeavor.
D) the liability will be construed to be joint and several.
E) it is a relationship for a specific undertaking with a limited duration.

Question 37

The court may upon an application by one or more partners order the partnership dissolved under which circumstance?

A) A partner is guilty of conduct which adversely affects the carrying on of the business.
B) A partner becomes permanently incapable of performing his part of the partnership agreement.
C) A partner is found mentally incompetent.
D) A partner willfully or persistently commits a breach of the partnership agreement.
E) all of the above

Question 38

A partnership can only be formed by two or more natural persons.

Question 39

James and John go into business together as partners. They each decide to make contributions to the business of the partnership. James has two vans worth $15,000 which he gives to the partnership. John owns an old farmhouse worth $60,000 that they decide can be used as a warehouse and John gives it to the partnership. Five years later there is a falling out and they decide to end the partnership. By this time the warehouse is worth $80,000 and the vans are worth $12,000. John will be entitled to $80,000 and James will be entitled to the depreciated value of the vans, namely
$12,000.

Question 40

Mike, James and Mary, advertizing consultants, enter into a partnership called "Sensational Adverts". About a year a year after the partnership is established, Mike and Mary have an argument and Mike tells the other partners that he will soon be leaving the partnership. A week later, "Sensational Adverts" is invited to submit a bid to produce an advert for a local beer company. Mike, who is the member of the partnership in charge of beer adverts, sees this as an opportunity to start his own business. Mike resigns from "Sensational Adverts" , starts his own company, and then submits a bid. Mike's bid is accepted. There is nothing wrong with Mike's conduct.

Question 41

In a contractual joint venture, how do the participants protect themselves from the liabilities of their partners?

Question 42

Why should you register the partnership with the province?

Question 43

Three ladies form a partnership. They contribute the same amount of capital and they have agreed to share equally on the profits. If a loss occurs, need they share equally on the loss? If they each put in roughly the same amount of time, can their salaries be different? Explain your answer in both cases.

Question 44

Compared to a sole proprietorship, what are some disadvantages in carrying on business as a partnership?

Question 45

Discuss two reasons why the partnership acts have remained virtually unchanged in the last 100 years.

Question 46

Why is it practical to think of a partnership as having its own separate personality rather than just the collective rights and duties of all the partners?

Question 47

Explain how a partnership can be formed by implication?

Question 48

Partners in a partnership are exposed to unlimited liability. In addition to having their own personal assets available to satisfy creditors they also can become liable for the actions of other partners. Give an example which illustrates this possibility.

Question 49

Is a well- drafted, carefully thought- out partnership agreement a guarantee of a successful partnership? If not, what is?

Question 50

What protection does a limited partnership offer to the limited partner and how can the benefit be destroyed by the limited partner?

Question 51

Bill and Joe agreed to form a partnership to carry on their goal of distributing food to the needy as a charitable endeavor. Is this a true partnership?

Question 52

Explain what a limited liability partnership is. Why might one want to form a limited liability partnership rather than a limited partnership?

Question 53

Partners have fiduciary duties one to another and if they are professionals they have fiduciary duties with their clients. How would these duties differ?

Question 54

In the absence of an agreement stating how the partnership is to be dissolved, name three circumstances where a partnership would be terminated.