Deck 42: Partnerships

Question 1

Persons who are not partners under appropriate circumstances may be held liable to third persons as though they were partners.

Answer 1

True

Question 2

A partner is considered an employee of the partnership when doing work that would ordinarily be done by an employee.

Answer 2

False

Question 3

Sharing of gross returns, as compared to the sharing of profits, is strong evidence of a partnership.

Answer 3

False

Question 4

A partnership is organized for the profit of its members.

Question 5

A partnership must have a name.

Question 6

The sharing of profits and losses is conclusive evidence of partnership.

Question 7

The fact that parties share profits and losses is strong evidence of the existence of a partnership.

Question 8

A registration certificate for a partnership's fictitious name contained the names of Barry, Boyd, and Swartz. Cruise extended credit to the firm in reliance in part on the certificate that named Swartz as a partner. Swartz, in fact, had no knowledge of the certificate and never had agreed to be a partner. Because of Cruise's reliance on the certificate and the statement that Swartz was a partner, Swartz has a partner's liability insofar as Cruise is concerned.

Question 9

A partnership may occur even though the parties did not label their relationship a partnership.

Question 10

The burden of proving the existence of a partnership will always fall on one of the partners.

Question 11

The Uniform Partnership Act, a codification of partnership law, has been adopted by 49 states.

Question 12

A partnership may be formed for any legal purpose.

Question 13

When a person who performs continuing services for another receives a fixed payment that does not depend on the existence of profit and is not affected by losses, that person is a partner.

Question 14

The rights of partners are determined by the partnership agreement.

Question 15

All partners must contribute money to be treated as partners.

Question 16

A partnership involves partners' contributions of capital, services, or a combination of these.

Question 17

As in the case of agency, the burden of proving the existence of a partnership is on the person who claims that one exists.

Question 18

Partnership property is only that property contributed by the partners.

Question 19

Each partner is an agent of the partnership.

Question 20

The mere fact that an enterprise is described as a partnership is not controlling or binding regarding its true business form.

Question 21

A partner has the authority to do those acts that are customary for a member of a partnership conducting the particular business of that partnership.

Question 22

Partners hold title to firm property by:

A)tenancy in partnership.
B)tenancy in common.
C)joint tenancy.
D)none of the above.

Question 23

The assignee of a partner's interest in the partnership becomes a partner only with the consent of the other partners.

Question 24

Aliota and Blake are partners. Aliota contributed 75 percent of the firm's capital and Blake contributed 25 percent. Aliota has a controlling interest in the management of the firm.

Question 25

Partners have no authority after dissolution to create new obligations, but they do retain authority to perform any acts necessary to wind up the business.

Question 26

A majority action of partners is not binding if it contravenes the partnership agreement.

Question 27

No partner can hire an employee unless all partners agree on the need for the position.

Question 28

In determining the rights of partner Dewey in the firm of Dewey, Cheatham and Howe, the most important reference point is:

A)the Uniform Partnership Act.
B)the partnership agreement.
C)the sworn testimony of Cheatham and Howe.
D)the customs and traditions of similar partnerships.

Question 29

A creditor of an individual partner cannot proceed against any specific items of partnership property, but can obtain a charging order against that partner's interest in the partnership.

Question 30

The formal document that is prepared to evidence the contract of the parties creating their partnership may be called:

A)a partnership agreement.
B)articles of incorporation
C)articles of cooperation
D)all of the above.

Question 31

The habitual drunkenness of a partner is a sufficient cause for judicial dissolution of a partnership.

Question 32

Bankruptcy of only one of the partners does not cause dissolution of the firm.

Question 33

A partner cannot make a general assignment of firm property for the benefit of creditors unless authorized by the other partners or unless they have abandoned the business.

Question 34

Persons who are in a partnership are called __________ partners.

A)general
B)silent
C)secret
D)nominal

Question 35

In determining whether a partnership exists, which of the following factors is not evidence of a partnership?

A)shared profits
B)co-ownership of property
C)equal control of the business
D)shared losses

Question 36

When dissolution has been caused by operation of law, notice of such dissolution must be given to third persons.

Question 37

Partnership property may consist of:

A)real property only.
B)personal property only.
C)any and all property acquired by the partnership.
D)all property contributed by the partners or acquired for the firm or with its funds.

Question 38

The vested rights of partners are not extinguished by dissolving the firm, and the existing liabilities remain.

Question 39

A partner admitted as a partner into an existing partnership has unlimited liability for all obligations of the partnership arising before such admission.

Question 40

Creditors of a firm have first claim on the assets of the partnership.

Question 41

Regarding distribution of assets upon winding up a partnership, what is paid first?

A)debts to outside creditors
B)return of capital
C)debts of partners who are creditors
D)profits

Question 42

Which of the following does not result in dissolution of the partnership by operation of law?

A)the expulsion of a partner
B)bankruptcy of the partnership or of one of the partners
C)the death of a partner
D)an event that makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership

Question 43

In a partnership of four physicians, a decision to buy an office copier for the partnership must be approved by:

A)all of the partners.
B)at least three of the partners.
C)at least two of the partners.
D)one partner.

Question 44

The dissolution of a partnership occurs when:

A)a complaint seeking a judicial dissolution is filed.
B)a judicial dissolution is decreed by the court.
C)petitioned for by the aggrieved partner.
D)nonpermanent harm or injury has occurred.

Question 45

A partner's authority to act for the partnership is similar to the authority of a(n):

A)agent to act for a principal.
B)independent contractor to act for an employer.
C)shareholder to act for a corporation.
D)employee to act for another employee.

Question 46

Regarding partnership property:

A)only a managing partner has the right to use firm property for firm business.
B)where a three-person partnership owns three autos, each partner owns one of the autos individually.
C)on the death of a partner, that partner's share of partnership property vests in his or her next of kin.
D)a creditor of a partner cannot proceed against any specific items of partnership property.

Question 47

Partners are not entitled to compensation for services performed for the partnership unless:

A)the services are performed by a surviving partner in winding up the partnership affairs.
B)the services are unusual or more extensive than services rendered by other partners.
C)due to the illness of a partner, the other partners have to perform the services ordinarily performed by that partner.
D)the services rendered by the partner are such that they ordinarily would be rendered with the expectation of compensation.

Question 48

Theo, a member of TGI partnership, withdrew from the partnership and duly notified the other members. The firm was an at-will partnership and the parties parted amicably, posting a notice in the local newspaper of the dissolution of their firm. Cosmo, a customer who had conducted business with Theo several times, did not see the newspaper notice and was not informed of the dissolution. Later, Theo approached Cosmo concerning a transaction similar to those Cosmo had engaged in before with Theo acting on behalf of TGI. Cosmo placed an order, gave a substantial down payment to Theo, and received a receipt on TGI stationery from him. Theo thereafter absconded with the down payment, and TGI failed to honor the contract. Cosmo sued the other members of TGI partnership. Discuss their potential liability.

Question 49

A partner may withdraw from the partnership without liability:

A)unless the withdrawal violates the partnership agreement.
B)when the partnership is not for a definite purpose.
C)when the partnership is not for a definite time.
D)all of the above.

Question 50

Rundles, Kreiger, and Larson formed a partnership to breed and show horses. Rundles and Kreiger each contributed $25,000 to the partnership. Larson contributed four (4) horses valued at $25,000. The partnership agreement provided that the partners would share profits equally. When the horses failed to perform as expected, Rundles and Kreiger decided to reduce Larson's share of the profits. Larson claims that this decision must be unanimous to be binding. How will the case be decided?

Question 51

Which of the following will not result in dissolution of the partnership by court decree?

A)a partner becomes incapable of performing the terms of the partnership agreement
B)a partner persistently or willfully acts in such a way that it is not reasonably practicable to carry on the partnership business
C)the expulsion of a partner
D)all of the above

Question 52

An assignee of a partner's interest does not become a partner without the consent of the other partners and is only entitled to:

A)participate in the management of the partnership.
B)receive the assignor's share of the profits during the term of the partnership and the assignor's share of capital on dissolution.
C)inspect the books of the partnership.
D)vote on matters concerning the business of the partnership.

Question 53

Dissolution of a partnership:

A)ends the right of the partnership to exist as a going concern.
B)is followed by a winding-up period.
C)reduces the authority of the partners.
D)all of the above.

Question 54

When a partnership is dissolved by the act of a partner, notice:

A)is not required.
B)must be given to the other partners only.
C)must be given to third persons only.
D)must be given to both other partners and third persons.

Question 55

A third person should recognize that a partner has limited or no authority if:

A)the partner seeks to act for the partnership concerning a matter not within the usual business of the firm.
B)the third person knows that the partnership has been terminated.
C)the partner seeks to pay a personal obligation by issuing a promissory note in the name of the firm.
D)all of the above.

Question 56

Robertson and Enrickson prepared an agreement to enter into a partnership. Both of the partners realized that outside capital was needed for the firm to begin operations; however, they also realized that their individual and combined credit ratings would not attract sufficient funds. In order to improve the new partnership's ability to attract investment capital, and with the approval of Enrickson, Robertson added his friend Thompson's name to the partnership agreement. Thompson, a well-known personality from a family of means, was not asked to be a partner and knew nothing of Robertson's and Enrickson's actions. Upon seeing Thompson's name on the partnership agreement, a local bank readily agreed to advance Robertson and Enrickson the total sum required to begin operations. The partnership has now failed, and the bank would like to hold Thompson, Robertson and Enrickson liable for the amount of the loan. Will the bank recover from Thompson, Robertson and Enrickson?

Question 57

In the absence of a provision in the partnership agreement on the sharing of profits, partners share profits:

A)according to their status in the firm.
B)in proportion to their contribution of services.
C)in proportion to their capital contribution.
D)on an equal basis without regard to capital or services contributed.

Question 58

Beatrice withdrew from a partnership but failed to notify any of the other partners except Tom, who did not have an opportunity to notify the other partners. Simultaneous to Beatrice's notifying Tom, Susan, another member of the partnership, made an authorized contract with a third party. Regarding that contract made by Susan, Beatrice is:

A)not bound because she had withdrawn from the firm.
B)bound because she failed to notify Susan of her withdrawal.
C)not bound because withdrawal from the partnership caused its dissolution.
D)bound because one may not withdraw from a partnership without the consent of one's partners.

Question 59

In the absence of an express agreement permitting continuation of the business by the surviving partners, they must wind up the business and account for the share of any partner who has:

A)withdrawn.
B)died.
C)been expelled.
D)all of the above.