Ch 31 - All Forms of Partnership Flashcards
General partnership or ordinary partnership ➡
Entities that are informally run.
Formal partnerships ➡
LLP or LP
What is a partnership?
An agreement by 2+ persons to carry on, as co-owners, a business for profit.
- Governed by common law, agency law, and statutory law
- Similar to an agency with a fiduciary relationship
Difference ➡ Partnership has 2+ persons committing capital, labor, skill for shared profit
What is a partnership governed by?
- Common law
- Agency law
- Statutory law
What is a Uniform Partnership Act (UPA)?
This act governs in a partnership in the absence of express agreement. (uniform laws across state-to-state, but states need to have adopted it i.e. state legislature must pass the legislation, but when they do, they are free to change the language)
Partners may agree to any legal terms by agreement, but if particular terms are not in agreement, the UPA (state law) governs.
Partners get to decide whatever they want to in terms of how they run their partnership as long as their actions are lawful. How they run it can be different than the UPA.
A particular general partnership has seven partners - two partners own 25% each and the other five partners own 10% each. The partners have not entered into a partnership agreement. Under the UPA, if these seven partners are voting on an ordinary management issue
A.) a majority of the partners must agree.
B.) the two partners who own 25% each must agree.
C.) the senior partner decides.
D.) 2/3 of the partners must agree
A.) a majority of the partners must agree.
Cora, Darla, and Erma are partners in a sub shop called Sandwichez, splitting the profits equally. Cora contributes 65 percent of the capital. When Sandwichez is dissolved, it has more liabilities than assets. Under the UPA, losses will be paid by
A.) all of the partners in proportion to their capital contributions.
B.) all of the partners in proportion to their shares of the profits.
C.) Cora because she contributed most of the capital.
D.) Darla and Erma because they contributed the least of the capital.
B.) all of the partners in proportion to their shares of the profits.
Dean and Ellen seek to form a limited partnership. In most states, the limited partnership will be created when Dean and Ellen
A.) file a certificate of limited partnership.
B.) execute a partnership agreement
C.) accept their first client.
D.) make their capital contributions.
A.) file a certificate of limited partnership.
If profit sharing exists in a business, it creates the presumption that a partnership exists.
A.) True
B.) False
A.) True
Eva is a limited partner in EverGreen LP, a lawn service, which cannot pay its debts. Eva is liable for the debts
A.) in proportion to the number of partners in the firm.
B.) to no extent.
C.) to the extent of her capital contribution to the firm.
D.) to the full extent.
C.) to the extent of her capital contribution to the firm.
Among the biggest attributes of an LLP are that it limits the personal liability of the partners and
A.) it allows the partnership to continue as a pass-through tax entity.
B.) LLP statutes do not vary from state to state.
C.) it can only do business in the state in which it was formed.
D.) it offers the advantage of double taxation credits.
A.) it allows the partnership to continue as a pass-through tax entity.
Darlene leases a building from Carlo within which she will run her new restaurant. The two year lease requires Darlene to pay Carlo $2,000 per month plus 15 percent of monthly profits from the restaurant. Darlene and Carlo are
A.) not partners, because Carlo does not have an ownership interest or management rights in the restaurant.
B.) partners in a partnership for one year, which may be renewed if both parties agree.
C.) not partners, because the percentage of monthly profits to Carlo is for a sum less than half of the profits.
D.) partners in a partnership for two years.
A.) not partners, because Carlo does not have an ownership interest or management rights in the restaurant.
Sid and Teri come to an agreement over the telephone to form a partnership. In order to be enforceable under the Statute of Frauds, Sid and Teri’s agreement must
A.) be filed in the appropriate state office.
B.) be in writing.
C.) be signed by a notary public.
D.) not involve a third party.
B.) be in writing.
During the winding up process, a partnership’s creditors must be paid before partners can receive their capital contributions.
A.) True
B.) False
A.) True
A new partner’s liability for the debts of a partnership that were incurred prior to his/her admission is
A.) limited to his/her capital contribution to the firm.
B.) limited to his/her personal assets.
C.) nonexistent
D.) unlimited.
A.) limited to his/her capital contribution to the firm.
