Question 1

Jones is a partner in a law firm in a small town and he is also doing legal work out of his home in the evening for himself. Which of the following statements is correct with respect to his responsibility for the money he earns?

Accepted Answer

Jones has a fiduciary duty to the partnership. If he engages in business of the kind conducted by the partnership without the consent of his partners, he must account to the partnership for any profits made. This is because his actions could be seen as competing with the partnership's business, which is generally not allowed without the partners' consent.

Question 2

The Partnership Act provides that if the partners do not agree otherwise, certain terms of a partnership agreement will be implied. Which of the following is not such an implied term?

Accepted Answer

The Partnership Act typically implies that each partner is jointly and severally liable for the debts and obligations of the partnership, not limited to their initial cash contribution.

Question 3

Which of the following is incorrect with respect to the law governing limited partnerships?

Accepted Answer

Limited partners are generally assured of limited liability, but this assurance can be compromised if they participate in management, allow their names to be used in the partnership name, or fail to properly register. Thus, simply registering as a limited partner does not guarantee limited liability under all circumstances.

Question 4

In which one of the following situations has the duty between partners not been breached?

Accepted Answer

In A, Z's opening of a shoe store in a different city (Regina) does not directly compete with the partnership's restaurant business in Winnipeg, thus not breaching the duty between partners to avoid conflicts of interest in the same line of business.

Question 5

Which of the following is correct with respect to the law of partnership?

Accepted Answer

C is correct because in a partnership, each partner is vicariously liable for the wrongful acts or omissions of any other partner if such acts or omissions occur in the ordinary course of the partnership business or with the authority of their co-partners. This means that a partner can be held responsible for the actions of another partner if those actions are related to the partnership's business, even if they were not directly involved.

Question 6

Which one of the following is incorrect with respect to the rights of partners unless they have agreed otherwise?

Accepted Answer

E is incorrect because in a partnership, a partner cannot sell their share of the partnership to another person without the consent of the other partners, unless the partnership agreement states otherwise. This is to protect the interests and maintain the mutual trust and agreement upon which the partnership is based.

Question 7

Paul and Laurie both worked at the mall. They often discussed how frequently they made decisions for customers when helping them pick out gifts. They concluded that knowing the merchandise in all the stores as well as they did, they could make a lot of money by doing Christmas shopping for customers. They discussed the idea at length. Laurie's mom, a buyer for a department store in the mall, referred some customers to them. With more and more customers, they wanted to quit their jobs and devote more time to this new business. Laurie's mom agreed to give them $2000, but doesn't want her liability to go beyond that. On these facts, which of the following is true?

Accepted Answer

If Laurie's mom does not follow the statutory provisions governing limited partnerships, she could be deemed a general partner and liable for claims beyond her $2000 investment.

Question 8

Frank asked Matt to join him in a business venture. Matt has heard that partnership could result in some harsh consequences. Which of the following statements that Matt has heard about the liability of partners is false?

Accepted Answer

Option D is false because a partner may still be liable for partnership debts incurred after they leave the partnership if proper notice of their departure is not given to all creditors or if the departure is not publicly advertised, depending on the jurisdiction's laws.

Question 9

Ted Anderson and Arnie Lee began working together to write some computer programs for companies that needed to adapt standard programs to their particular needs. Ted's dad, an employee for Gong Telephone, would often hear about businesses with such needs, and would solicit clients for Ted and Arnie or advise Ted and Arnie on how to approach potential clients. Ted and Arnie now want to set up business formally and they need money. Ted's dad will give them $9000 but doesn't want his liability to ever go beyond that amount. On these facts, which of the following is true?

Accepted Answer

Ted's dad could be deemed a general partner if he does not adhere to the statutory provisions governing limited partnerships, which typically include restrictions on the extent of involvement in the management of the business for limited partners.

Question 10

Which of the following is true with regard to partnership?

Accepted Answer

The answer of Which of the following is true with...

Question 11

In which one of the following situations would Sam not be liable for the conduct of his partner, Joe?

Accepted Answer

Joe's action of opening a franchise in an adjoining municipality without Sam's knowledge is outside the scope of their partnership business, making Sam not liable for the losses incurred.

Question 12

Which of the following will establish the existence of a partnership?

Accepted Answer

The intention to share expenses of the business indicates a mutual agreement and joint control or management, which are key elements in establishing the existence of a partnership. Sharing profits alone, as in the other options, does not necessarily indicate a partnership without the intent to operate a business together.

Question 13

Adams was approached by a Mr. McCarthy of XYZ Co., who requested that Adams pay $10,000 to extinguish a debt owed by the partnership of Adams and Jefferson. Adams denied the partnership and the liability. In asserting his claim, McCarthy cited the following facts, all of which he could prove. Which of these facts is the strongest evidence of the existence of a partnership?

Accepted Answer

Sharing profits from a business is a strong indicator of a partnership because it implies a joint venture with shared financial interests and responsibilities, which is a key characteristic of a partnership.

Question 14

Joe R. notified his partners in writing that he would be retiring from the business partnership at the end of 2015. It was acknowledged and agreed upon and, at year end, the remaining partners paid him for his interest in the partnership. In February of 2016, one of the remaining partners misapplied some trust funds that a long-time client had placed in the care of the partnership for the purchase of a hotel. The partnership was sued, but the assets of the partnership were not sufficient to satisfy the judgment. The successful plaintiff went against the personal assets of the partners, including those of Joe R. What is the likely outcome?

Accepted Answer

Joe R. is liable if he failed to give proper notice to outsiders, namely, the long-time client whose funds were misapplied. In many jurisdictions, retiring partners can still be held liable for partnership obligations incurred after their departure unless they've given notice of their retirement to all interested parties, including clients and creditors.

Question 15

Chuck, Howard, and Ben decide to go into a business venture, developing and distributing educational software. For tax reasons, they do not incorporate. Each contributes $10,000, and Howard also contributes a truck and his programming expertise. They agree that all three will be actively involved in the day-to-day management of the business. To determine their rights and obligations, they enter into a one-page agreement that provides only that each of Chuck, Howard, and Ben is to get 33-1/3% of the profits and also specifically states that they are not to be viewed as partners. Based on these facts, which of the following statements is true?

Accepted Answer

The law considers individuals to be partners if they share profits and participate in the management of the business, regardless of whether they explicitly state they are not partners in their agreement.

Question 16

Norma and Janet decided to form a partnership for selling gourmet picnic baskets. To raise sufficient capital, they convinced their mothers to invest $5000 each as limited partners. Norma's mother was an experienced restaurateur and watched the business with great interest. On several occasions, she advised them on the business and contacted old business associates to buy surplus stock. She even filled in taking orders in the office when needed. A customer who was made ill by contaminated food from a tin can supplied in one basket sued. What would be the liability, if any, of the mothers?

Accepted Answer

Norma's mother would have unlimited liability because she took part in the management of the business, which is a characteristic of a general partner's role, not a limited partner. Limited partners typically have their liability limited to their investment amount and do not actively participate in the management of the business.

Question 17

Max has been sued for $20,000 as a partner with Jim Nogoode. Which of the following is false with regard to determining whether or not a person is a partner?

Accepted Answer

Sharing of profits is a common indicator of a partnership, but the absence of profit does not necessarily mean there is no partnership. Partnerships are defined by the intention to carry on a business together for profit, not by the actual realization of profit.

Question 18

Three students in a business faculty created a computer program that compared various retirement plans. They decided to go into business together to offer their services directly to the public. After doing a feasibility study, they felt there were profits to be made. For tax reasons, they decided not to incorporate. Each contributed $15,000 and Wayne, one of the three, contributed a computer. In a short written agreement, they agreed that all three would be actively involved in the management of the business, that all three would work to update the program, that they would share the profits equally, and that they should not be viewed as partners. Based on these facts, which of the following statements is true?

Accepted Answer

Despite their intention not to be viewed as partners, their actions (joint contribution to capital, active involvement in management, agreement to share profits equally) meet the criteria for a partnership under common law. The intention to not be partners, as stated in their agreement, does not override the legal reality of their business arrangement.

Question 19

Which of the following statements is correct with respect to limited partnerships?

Accepted Answer

A limited partner can indeed lose their status as a limited partner if they participate in the management of the business, which is a key distinction in how limited partnerships operate. This involvement can make them liable as a general partner would be.

Question 20

Which of the following is incorrect with respect to the responsibilities of partners to each other?

Accepted Answer

Partners are not free to compete with the partnership, even on their own time, as this would violate their fiduciary duty to act in the best interests of the partnership.

Quiz 10: Agency and Partnership