General Partnership/Joint Venture Flashcards by Unknown Unknown

General Partnership

a- 2 or more persons
b- who agree expressly impliedly
c- to carry on as co-owners a business for profit.
NB: If the agreement is committed for more than a year it must be in writing.

Majority vote can make the law.

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Types of business entities that can be formed without filling organizational documents with the state. ‘Pass Key’

General partnership or a Sole propertship.
Advantage easy to file
Disavantage: Unlimited liability

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Difference between Joint Venture and General Partnerships

The general Partnership is an ongoing business. ‘Series of related transactions.’

The Joint Venture: Limited to a single transaction or project or a series of related transactions. ‘Not on going business’

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business can be formed with only one individual owning the business

Sole Proprietorship, Limited Liability Company

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In which type of business entity is the entire ownership interest most freely transferable?

Corporation
Among the business entities listed, entire ownership interests are most freely transferable in a corporation. Unless transferability is restricted by contract (restricted shares or voting trusts or voting agreements), there are no restrictions on the sale of corporate stock (the common stock represents the stockholders’ ownership interest). The right to transfer ownership interests freely is one of the advantages of the corporate form of business.

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General Partneship ‘GP’ or Joint Venture

Unless they agree otherwise, they all have an legal right to share the profit and they’ll share losses the same way they share profit.

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A joint venture is a(an):

A joint venture is an association of persons engaged as co-owners in a single (special transaction) undertaking for profit. A joint venture is treated as a partnership for most important legal respects.

A joint venture is treated as a partnership and not as a corporate enterprise. A joint venture must have a profit motive.

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Fanny and John each own and manage their own companies. Fanny’s business is manufacturing freight boxes of all types, and John’s business is selling freight boxes to different industries. They decide to combine their expertise and knowledge to produce and sell freight boxes specifically designed for the new airline company that just formed in their city. Which of the following best describes the business formed by the parties?

A joint venture is formed for a single business undertaking such as building and designing freight containers to be sold specifically to one company. Each company coming together in this joint venture has its own business outside of this one endeavor.

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Dissociation

Is a change in a relationship of the partners caused by any partner ceasing to be associated in the carrying of the business.

If a partner wrongfly dissociates they can be sued for breach of contract.

A dissociate partner remain liable for debts incurred by partnership prior to dissociation unless there has been 3

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Limited liability partnership

An LLP does not pay taxes on its earnings. Instead, the profits and losses flow through to the partners as in a general partnership. The LLP files an informational tax return like that of a general partnership. The partners may agree to have the entity managed by one or more of the partners. A partner may be another entity.

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Limited liability company (LLC)

A limited liability company (LLC) is taxed as a flow-through to the owners (members). All the owners have limited personal liability and are allowed to actively participate in the management of the business. Owners are not required to be U.S. citizens or residents.

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S corporation

An S corporation is taxed as a flow-through to the owners (shareholders), and all the owners have limited personal liability and are allowed to actively participate in the management of the business. However, only U.S. citizens or residents can be shareholders in an S corporation. Since one of the owners is a resident and citizen of Australia, he or she would not be able to organize the business as an S corporation

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A limited partnership (LP)

A limited partnership (LP) is taxed as a flow-through to the owners (shareholders). Owners are not required to be U.S. citizens or residents. However, in a limited partnership there must be at least one limited partner and one general partner. The limited partner has limited personal liability but is not allowed to actively participate in management. The general partner is allowed to actively participate in management but does not have limited personal liability. In this situation, only one owner could have limited liability but could not participate in management of the business, and the other owner could participate in management of the business but would have personal liability for partnership debts.

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C corporation

All the owners (shareholders) of a C corporation have limited personal liability and are allowed to actively participate in the management of the business. Shareholders are not required to be U.S. citizens or residents. However, a C corporation is not taxed as a flow-through entity. The corporation’s income is taxed at the corporation level and then taxed again to shareholders when dividends are distributed.

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A partnership

is an agreement between two or more persons to carry on as co-owners of a business for profit; partners share management and profits and losses, not gross receipts.

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Which of the following is not necessary to create an express partnership?

Execution of a written partnership agreement.

A written partnership agreement, while certainly desirable, is not usually necessary to form a valid partnership; partnership agreements are not normally subject to the statute of frauds.

A partnership is an association of two or more persons who agree to carry on as co-owners of a business for profit. Thus, an intent to carry on a business for a profit is a requirement for creating an express partnership.

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Rivers and Lee want to form a partnership. For the partnership agreement to be enforceable, it must be in writing if:

The agreement cannot be completed within one year from the date on which it will be entered into.

A seven-person partnership lacks a partnership agreement. Under the Revised Uniform Partnership Act, how many votes are required to approve an extraordinary transaction of partnership business?

Seven votes

Seven votes are required to approve an extraordinary transaction of partnership business.

The Revised Uniform Partnership Act (RUPA) requires that any partnership matters not in the ordinary course of business be approved by all the partners unless there is an agreement to the contrary in the partnership agreement.

Which of the following statements is correct regarding the division of profits in a general partnership when the written partnership agreement only provides that losses be divided equally among the partners? Profits are to be divided:

Equally among the partners.

When the partnership agreement is silent as to how profits are to be divided, they are divided equally. Note also that when the agreement is silent, losses are treated similar to profits, there is no reverse rule that profits are treated like losses.

Lewis, Clark, and Beal entered into a written agreement to form a partnership. The agreement required that the partners make the following capital contributions: Lewis, $40,000, Clark, $30,000, and Beal, $10,000. It was also agreed that in the event the partnership experienced losses in excess of available capital, Beal would contribute additional capital to the extent of the losses. The partnership agreement was otherwise silent about division of profits and losses. Which of the following statements is correct?

Profits are to be divided equally among the partners.

Regardless of the contributions and obligations of the partners, unless the partnership agreement specifically states otherwise, all partners are entitled to an equal share of the profits.

Gillie, Taft, and Dall are partners in an architectural firm. The partnership agreement is silent about the payment of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50% of the business, and Gillie and Taft 25% each. How should profits of $120,000 for the year be divided?

Gillie $40,000, Taft $40,000, Dall $40,000.

Rule: In the absence of an agreement to the contrary, the profits will be shared equally regardless of investment of money or time.

Grey and Carr entered into a written partnership agreement to operate a hardware store. Their agreement was silent as to the duration of the partnership. Grey wishes to withdraw from the partnership. Which of the following statements is correct?

Grey may withdraw from the partnership at any time.

Rule: Where a partnership agreement does not state the duration of the partnership, the partners may withdraw at any time. The partner need not obtain consent of the other partners or of the court.

No, Each partner’s
existing liability
would be discharged.
Yes, Each partner’s
apparent authority
would continue.

Rule: Upon the dissolution of the partnership, each of the partners continues to have liability for partnership debts. Upon dissolution of the partnership each of the partners will continue to have apparent authority. The apparent authority of a partner can only be negated upon proper notice to third parties.

In general, which of the following statements is correct with respect to a limited partnership?

A limited partner has the right to obtain from the general partner(s) financial information and tax returns of the limited partnership.

Toby invested $25,000 in a limited partnership with Connor and Blair. Toby was a general partner in the limited partnership. The partnership failed to pay Kelly $45,000 for services on behalf of the partnership. Which of the following statements is generally correct regarding Toby's liability under the Revised Uniform Limited Partnership Act?

Toby was a general partner and general partners in a limited partnership are personally liable for all obligations of the partnership. If the partnership does not pay Kelley, Toby can be held liable for the amount owed.

Tim, Peter, and Rick want to form a limited liability company. What document must they file with the state?

Articles of Organization. The Articles of Organization must be filed with the secretary of state. An operating agreement is an agreement between the members containing provisions relating to management, profit sharing, transferring interests, etc. and does not need to be filed with the state. Articles of incorporation and bylaws are documents relating to corporations, not an LLC.

The owners of a limited liability company are known as which of the following?

Members The owners of a limited liability company are called members. The owners of a partnership are called Partners. The owners of a corporation are called Stockholders. The term "shareholder" is synonymous with the term "stockholder" and is the name given to the owner of a corporation.

A CPA was preparing the financial statement for a limited liability company. To which of the following would the CPA's report be addressed?

Member The owners of a limited liability company are called members. The controlling partner(s) of a general partnership or limited partnership are called general partners. The limited partners of a limited partnership are called limited partners.

Unless there is an agreement to the contrary, the voting power of members in a limited liability company is determined by:

Each member's capital contribution. Absent an agreement otherwise, all members generally participate in management, and their voting strength is determined in proportion to ownership interest. This is calculated by comparing each member's capital contribution to that of the other members.

A member of a limited liability company may generally do all of the following, except:

Transfer his membership in the company without the consent of the other members.

A CPA firm, operated as a general partnership, will dissolve by mutual agreement at the end of the year. During the year, distributions have been made to some partners in excess of their capital invested in the partnership. Which of the following statements is correct regarding the distribution of assets at the end of the partnership's existence?

Partners with negative capital accounts must contribute additional funds to the partnership.

Two individuals are planning to form a business with equal ownership. The individuals would like to limit their personal liability, avoid double taxation, and be active in the business. Which of the following organizational structures would meet their requirements?

Limited liability company. The objectives of the two individuals are to limit liability, avoid double taxation, and be active in management. As limited liability company members, they would have no liability beyond their investment. With a limited liability company, the entity would be taxed like a partnership (thus no double taxation) unless they chose otherwise. As limited liability company members, they would have the right to participate in management decisions of the LLC. because in a limited partnership there are both limited and general partners. The general partners have the right to manage, but have unlimited liability. The limited partners have no liability beyond their investment, but have no right to manage or control. Thus, they cannot have both limited liability and the right to manage in a limited partnership.

A limited partnership must have:

At least one general partner and one limited partner.

A stockholder's right to inspect books and records of a corporation will be properly denied if the stockholder:

Wants to use corporate stockholder records for a personal business. In general, a shareholder has a right to inspect the books and records of a corporation for purposes reasonably related to his or her status as a shareholder. This right will be properly denied where the purpose is not reasonably related to their status as a shareholder.

Frey Corp. has 1,000 shares of issued and outstanding common stock. Frey's articles of incorporation permit a stockholder who owns 5% or more of the outstanding stock or who has owned the stock for longer than six months to inspect Frey's books and records. Ace, who has owned 25 shares of Frey stock for four months, wants to inspect the books and records. Under the Revised Model Business Corporation Act, which of the following statements is correct regarding Ace's right to inspect the books and records?

Ace may, after giving five days written notice, inspect the books and records to determine the value of Frey stock. The Revised Model Business Corporation Act (RMBCA) provides that any shareholder may inspect a corporation's books and records on five days notice for a proper purpose, and this right may not be limited or abolished by the articles or bylaws. Thus, Ace may inspect on five days notice.

For what purpose will a stockholder of a publicly held corporation be permitted to file a stockholders' derivative suit in the name of the corporation?

To recover damages from corporate management for an ultra vires management act. A derivative action is an action by a stockholder in the name of the corporation to recover damages or to seek some other remedy on behalf of the corporation when the corporation does not enforce its own rights. Such actions are often brought when the directors or officers have breached their duty to the corporation and have refused to sue themselves. An ultra vires act is an act outside of a director's or an officer's scope of authority and thus is a breach of duty to the corporation.

Hughes and Brody start a business as a closely-held corporation. Hughes owns 51 of the 100 shares of stock issued by the firm and Brody owns 49. One year later, the corporation decides to sell another 200 shares. Which of the following types of rights would give Hughes and Brody a preference over other purchasers to buy shares to maintain control of the firm?

The right to purchase new issuances of additional stock in order to maintain current proportional ownership is known as a pre-emptive right.

Pre-emptive rights

contractual rights that allow existing shareholders of a corporation to buy new stock before it is available to others.

Under the Revised Model Business Corporation Act, a dissenting (to leave someone without help or in difficult situations and not come back. eg: he dissected his wife for another woman) stockholder's appraisal right generally applies to which of the following corporate actions?

Short-form and Consolidations Mergers Rule: Shareholders who are dissatisfied with the terms of a merger, consolidation or sale of assets are permitted to compel the corporation to buy their shares at fair market value. This is known as the right of appraisal or the dissenting right. Rule: A short-form merger is when a parent mergers a 90% or more owned subsidiary into the parent. In this case, only the shareholders of the subsidiary have dissenting rights.