Question 1

The unlimited liability of partners means that not only can they lose their entire investment in the business, but their personal assets are also at risk, such as their home and car.

Accepted Answer

Partners in a business with unlimited liability are personally responsible for all debts and obligations of the business, which means their personal assets can be seized to satisfy any outstanding liabilities.

Question 2

Usually, the name of the business must be registered for a sole proprietorship, and a licence to operate must be obtained from the appropriate level of government.

Accepted Answer

This is true. Sole proprietorships do require registration of the business name and obtaining a license to operate, depending on the regulations set by the government.

Question 3

A sole proprietor is not only responsible for his own conduct but also for the wrongful conduct of any employee done in the course of employment.

Accepted Answer

As a sole proprietor, the owner is responsible for all aspects of the business, including the actions of their employees. If an employee engages in wrongful conduct (such as discrimination or harassment), the sole proprietor can be held liable for their actions.

Question 4

Societies are separate legal entities, separate and apart from the members who make them up.

Accepted Answer

Societies are considered separate legal entities because they have their own legal status and can own property, enter into contracts, and sue or be sued in their own name. This means that the members of the society are not personally liable for the debts or obligations of the society.

Question 5

A partnership is less expensive to set up than a corporation.

Accepted Answer

Partnerships typically have less legal requirements and paperwork to file than corporations, making them less expensive to set up.

Question 6

The partners can change the terms of their responsibilities to each other in the partnership agreement, but cannot change their obligations to third parties.

Accepted Answer

The partnership agreement outlines the rights and responsibilities of each partner within the partnership. However, these terms cannot affect the obligations of the partnership to third parties, such as creditors or customers. These obligations are determined by law and cannot be altered by the partners' agreement.

Question 7

Limited liability can be the most significant disadvantage of the sole proprietorship.

Accepted Answer

Limited liability is not a feature of sole proprietorships; instead, the owner has unlimited liability, meaning they are personally responsible for all the business's debts and obligations. This is considered a major disadvantage of the sole proprietorship structure.

Question 8

Unlimited liability means that an investor can only lose everything he has invested in a corporation.

Accepted Answer

Unlimited liability means that an investor can lose more than just what he has invested in a corporation. If the corporation is unable to pay off its debts, the investor's personal assets can also be used to settle the outstanding amount.

Question 9

Dennis, Sam, George, and Ray were partners in an accounting business, and Ray decided he wanted to retire. He sold his share of the partnership to Leonardo, but Leonardo is not a partner unless the other partners approve the change.

Accepted Answer

This is true because in a partnership, all partners must approve any changes to the partnership structure or membership.

Question 10

Although the sole proprietor's entire personal fortune is at risk, insurance may offset that risk.

Accepted Answer

It is true that insurance can offset the risk of a sole proprietor's personal fortune being at risk, as insurance can provide financial protection in case of lawsuits or accidents. However, it is important for sole proprietors to carefully choose and maintain appropriate insurance coverage to fully protect themselves and their businesses.

Question 11

It is possible through a partnership agreement to create different classes of partners.

Accepted Answer

A partnership agreement can specify different classes of partners, such as general partners who have control over management and receive a share of profits, and limited partners who do not participate in management but have limited liability and receive a share of profits.

Question 12

For a partnership to exist, something more than a single joint activity is required.

Accepted Answer

A partnership implies a collaborative and ongoing relationship between two or more individuals or entities, with shared goals and responsibilities. It goes beyond a single joint activity or transaction.

Question 13

The Partnership Act allows partners to change their liabilities and obligations to third parties.

Accepted Answer

The Partnership Act does not allow partners to change their liabilities and obligations to third parties. Partners are jointly and severally liable for the debts and obligations of the partnership.

Question 14

The sole proprietor carries on business alone and cannot employ others in the process.

Accepted Answer

A sole proprietor can employ others in the process of carrying on their business. However, they are personally responsible for all decisions and liabilities of the business.

Question 15

A partner's liability for the torts of her partners extends beyond those committed in the course of the business.

Accepted Answer

A partner's liability for the torts of their partners is generally limited to those committed in the course of the partnership's business.

Question 16

A sole proprietor is free from regulatory control.

Accepted Answer

Sole proprietors are still subject to regulatory control, such as taxation laws and business licensing requirements.

Question 17

A partnership is primarily a contractual relationship and can be created verbally or implied from conduct.

Accepted Answer

A partnership can be created through an oral or implied agreement, but it is still a contractual relationship between the partners.

Question 18

Chan sold a business to Scott and in the process they valued the good will of the business at $50,000. In the sale contract, it was agreed that this amount would be paid by Scott giving Chan 15% of the business profits until it was paid. This creates a partnership between them.

Accepted Answer

The arrangement to pay for goodwill with a percentage of profits does not necessarily create a partnership between Chan and Scott. It could simply be a payment term for the purchase of the business. A partnership typically involves a mutual agreement to share in profits and losses and to jointly manage the business, which is not clearly indicated by this arrangement alone.

Question 19

The requirement of unanimous consent protects partners.

Accepted Answer

The requirement of unanimous consent means that all partners must agree to a decision before it can be made. This ensures that no partner is overruled or excluded from the decision-making process, protecting the interests of all partners.

Question 20

The relationship between the partners is governed by contract law.

Accepted Answer

Partnership agreements are governed by contract law, which outlines the terms and conditions of the partnership, including each partner's rights and responsibilities.

Quiz 10: Agency and Partnership