Partnerships

Question 1

Timothy and Holly are Partners in a printing shop. If Denver obtains a judgement against Timothy for injuring Denver while TImothy was on partnership business, Denver must try and collect from the partnership before going after Timothy’s personal assets.

Answer 1

True

Question 2

The common law of agency applies to relations between partners and it also applies to relations between partners and third parties.

Answer 2

True

Question 3

The rules set out in the UPA defining the liability of partners to outsiders can be modified by the partnership agreement.

Answer 3

False

Question 4

Doyle contributed $10,000 to become a partner in the existing partnership of R&Z Heating. If Albert wins a judgement for $25,000 against R&Z on a claim that was incurred before Doyle became a partner, Doyle shares joint and several liability with his new partners for the whole obligation.

Answer 4

False

Question 5

Alicia and Ted have a written agreement wherein they will share the losses of their joint business. This agreement is strong evidence they are partners.

Answer 5

True

Question 6

Brock and Heidi agree to jointly run the hospital’s fundraiser. Even if they don’t have a formal written agreement, they have formed a partnership.

Answer 6

False

Question 7

Kyle, Pedro, and Madeline form a partnership. There is no agreement as to the duration of the partnership. The partnership is a partnership at will.

Answer 7

True

Question 8

The dissolution of a partnership means the same as termination.

Answer 8

False

Question 9

Jeremiah was a partner in a partnership, but quits. Dissociation has occurred.

Answer 9

True

Question 10

A partner always has the right, though not the power, to leave a partnership.

Answer 10

False

Question 11

A partnership can only be held liable for partner’s authorized acts.

Answer 11

False

Question 12

Elion was a partner in a partnership. Elion’s death is considered a wrongful dissociation.

Answer 12

False

Question 13

A partnership is liable for both the negligent and intentional acts of a partner if the acts were committed within the ordinary course of the partnership’s business.

Answer 13

True

Question 14

Li was involved in the winding up of her partnership. Li is not entitles to compensation for her work since she is a partner.

Answer 14

False

Question 15

Li, a partner, was involved in the winding up of a partnership. A lucrative business opportunity for the partnership arises. Li does not have the right to take on this new business.

Answer 15

True

Question 16

Charles and Becky are partners. If they have a disagreement, the Uniform Partnership Act will govern their respective rights with each other:

A. despite any written partnership agreement they may have signed.
B. only if they do not have a written partnership agreement that addresses the issue of dispute.
C. only if they agree to be bound by the UPA.
D. only if their written partnership agreement states that they will be bound by the terms of the UPA.

Answer 16

B. only if they do not have a written partnership agreement that addresses the issue of dispute.

Question 17

In the case of Hooper v. Hooper, the court found:

A. when the partnership was dissolved, one partner was entitled to property in kind in an amount by which his services had enhanced the value of the partnership.
B. when one partner unexpectedly became unable to contribute services and time to the partnership, there was an implied agreement that the other partner would be paid for the extra services he performed for the partnership.
C. the fact that one partner contributes greater skill and takes over management of a partnership business does not give rise to a right to an extra compensation.
D. although the partners had and express agreement to pay one partner for extra services rendered to the partnership, such an agreement is unenforceable.

Answer 17

C. the fact that one partner contributes greater skill and takes over management of a partnership business does not give rise to a right to an extra compensation.

Question 18

A partnership is the association of two or more persons to carry on as co-owners of a business for profit. The association:

A. must be established by filing Articles of Partnership with the Secretary of State.
B. must be established by a formal agreement.
C. means a voluntary relationship between the persons.
D. includes all direct descendants.

Answer 18

C. means a voluntary relationship between the persons.

Question 19

Jackie and Robert own an apartment building as partners. Cyndi, on eof their tenants, gives Robert a written notice that she will be moving out at the end of the following month. Robert did not tell Jackie that Cyndi was moving. Has Cyndi properly given notice to the partnership?

A. Yes. Notice to Robert was notice to the partnership.
B. Yes, if it is determined that Robert acted negligently in failing to notify Jackie.
C. No. Cyndi has an obligation to notify both Robert and Jackie.
D. No. Jackie was not notified since Robert never told her Cyndi was moving.

Answer 19

A. Yes. Notice to Robert is notice to the partnership.

Question 20

Which of the following events occurs first with respect to the ending of a partnership?

A. Termination
B. Winding up
C. Dissolution
D. Distribution of proceeds

Answer 20

C. Dissolution

Question 21

Theresa and Bobbi bought a racehorse together. They agreed to share all expenses and split profits equally. There was not agreement as to the duration of the partnership. After about a year, Bobbi decided she was tired of the racehorse business and left the partnership. Bobbi did not violate the partnership agreement. Theresa claims Bobbi’s leaving was wrongful. Is Theresa correct?

A. Yes, Bobbi was legally required to secure Theresa’s permission before leaving the partnership.
B. Yes, Bobbi had a legal duty to stay in the partnership until Theresa was willing to end the relationship.
C. Yes, Bobbi had a legal duty to stay in the partnership until a new partner could be found.
D. No, in a partnership at will, a partner has the right to leave the partnership at any time.

Answer 21

D. No, in a partnership at will, a partner has the right to leave the partnership at any time.

Question 22

Art and Alma made capital contributions of 60% and 40% respectively to their newly formed partnership, AA & A Associates. They did not have a written partnership agreement. At the end of the first year, the partnership made a profit of which Alma now claims half. However, Art maintains he should receive 60%. Who is correct?

A. Art, since the UPA presumes that profits and losses are divided in proportion to capital contribution.
B. Art, since it would only be fair.
C. Alma, because she works for the business.
D. Alma, as the UPA provides that the profits are split equally unless the partners agree otherwise.

Answer 22

D. Alma, as the UPA provides that profits are split equally unless the partners agree otherwise.

Question 23

Sandy, Ramon, and Bonnie were partners. Sandy dissociated from the partnership. Bonnie and Ramon decided to continue the business. When Sandy dissociated, there was a $50,000 debt owed to Great State Bank. Which statement is correct?

A. Sandy remains liable on the $50,000 debt owed to GSB.
B. Only Ramon and Bonnie are liable for the $50,000 debt owed to GSB.
C. The debt is extinguished as a result of the dissociation.
D. Whether Sandy remains liable depends on whether she filed a statement of dissociation.

Answer 23

A. Sandy remains liable on the $50,000 debt owed to GSB.

Question 24

At what stage are the partnership debts paid and the proceeds distributed to the partners?

A. During dissolution
B. During winding up
C. During termination
D. During dissociation

Answer 24

B. During winding up

Question 25

A group od accounting alumni decided to hold a fund-raiser to establish a scholarship for an accounting student. This enterprise is:

A. a limited partnership.
B. a partnership.
C. a charitable partnership.
D. None of the above.

Answer 25

D. None of the above

Question 26

If Kay, a partner in an auction business, has a personal creditor who is aggressive about collecting debt:

A. Kay can sell her share in the partnership to repay the debt regardless of what her partners want her to do.
B. The creditor can attach the partnership property to pay off the debt.
C. The creditor can attach partnership profits by obtaining a charging order.
D. Kay cannot meet her obligation to repay her personal creditor through her partnership assets. Her personal obligations will have to be paid through her personal funds or she will have to dissociate from the partnership and force the partnership to buy her share.

Answer 26

C. The creditor can attach partnership profits by obtaining a charging order.

Question 27

Kayla and Marshall formed a partnership. Marshall incurred a debt in the ordinary course of the partnership business. If the debt is not paid, the creditor may sue:

A. only Marshall.
B. only the partnership.
C. the partnership and the partners together or in separate lawsuits or in any combination.
D. Only Marshall and the partnership in a lawsuit together or the creditor loses any right to sue the partnership.

Answer 27

C. the partnership and the partners together or in separate lawsuits or in any combination.

Question 28

Gary and Herman are partners in a lawn mower repair business in Ohio. While Gary is on vacation, visiting his sister in Georgia, his sister’s neighbor has trouble with her mower and Gary fixes it for her. She insists on paying him. Gary:

A. may keep the payment since her did the work while he was on vacation.
B. must turn the money over to the partnership because he earned it doing the kind of work the partnership does.
C. may not accept the money because it would create a conflict of interest.
D. may not accept the money because it would mean he was taking a business opportunity away from the partnership.

Answer 28

B. Must turn the money over to the partnership because he earned it doing the kind of work that the partnership does.

Question 29

Judy believed that Ray and Don were partners in an automotive repair business. Ray and Don were not partners. Ray owned the business as a sole proprietor. Ray, however, allowed Don, his unemployed brother-in-law, to be around the business. When Judy was having her car repaired, Ray told her “my partner over there, Don, will give you a ride back here after work and your car will be done.” Judy allowed Don to drive her to work. While riding with Don, Don accidentally ran a stop light and caused an accident. Judy was hurt and claims that both Don and Ray are liable to her. Is she right?

A. Yes. This illustrates a partnership by estoppel.
B. No. Done was not a partner of the business.
C. No. Done was a dissociated partner.
D. No. There was no intent to have a partnership.

Answer 29

A. Yes. This illustrates a partnership by estoppel.

Question 30

Anne and Mike were winding up their partnership. Mike was approached by a person who wantd the partnership to do some work or him. Mike agreed that the partnership would do the work. Generally speaking, in such a situation:

A. Anne is not liable since the partnership was in the winding up phase.
B. Anne is not liable since she did not consent to the work.
C. Anny is not liable since Mike’s conduct was wrongful.
D. Anne is liable unless she filed a statement of dissolution with the Secretary of State within 90 days of when Mike entered the contract.

Answer 30

D. Anne is liable unless she filed a statement of dissolution with the Secretary of State within 90 days of when Mike entered the contract.

Question 31

Which of the following is rightful dissociation?

A. A partner in a partnership at will serves notice that he intends to withdraw.
B. A partner in a term partnership withdraws before the end of the term.
C. A partner in a term partnership becomes bankrupt.
D. A partner violates the partnership agreement.

Answer 31

A. A partner in a partnership at will serves notice that he intends to withdraw.

Question 32

Which of the following would be evidence that two people intend to be partners?

A. An agreement to share profits of a business.
B. Referring to each other as “partners.”
C. Agreeing to share in the business’ losses.
D. All of the above are evidence of a partnership.

Answer 32

D. All of the above are evidence of a partnership.

Question 33

Lori and Dan own a small restaurant as partners. Dan works several hours a day cooking, waiting on tables, doing the books, and so forth. Dan believes he is entitled to be paid at least a standard wage for all his work since, at the present time, the part-time kitchen helpers earn more than he does! Lori claims Dan is not entitled to anything other than the one-half ner profits. Is Lori right?

A. Yes. The UPA states a partner may not collect a “wage” from the partnership business under any circumstances.
B. Yes, as there is no agreement between Lori and Dan allowing for either of them to be paid wages for work done at the restaurant.
C. No Dan may collect only minimum wage, as required by federal law.
D. No. Dan may collect a fair wage for the work he has performed.

Answer 33

B. Yes. There is no agreement between Lori and Dan allowing for either of them to be paid wages for work done at the restaurant.

Question 34

Randy, Joan, and Arnie are partners. Their agreement did not address dissociation nor how long the partnership would last. Randy decided to leave the partnership. When Randy serves notice he intends to withdraw:

A. the partnership can either buy him out and continure in business or wind up the business and terminate the partnership.
B. the partnership terminates.
C. the partnership winds down.
D. the partnership estoppes.

Answer 34

A. The partnership can either buy him out and continue in business or wind up the business and terminate the partnership.

Question 35

Debbie is a partner with Adam and Marty. She sells her interest in the partnership to Craig. Which statement below is the most accurate?

A. Adam and Marty must approve the sale for Craig to become a full partner.
B. Either Adam or Marty must approve the sale of Debbie’s interest.
C. Craig has no right to become a full partner once he buys Debbie’s interest.
D. None of the above is correct.

Answer 35

A. Adam and Marty must approve the sale for Craig to become a full partner.

Question 36

Dusty dissociated from a partnership. To protect himself from debts of the partnership after he leaves, Dusty should:

A. secure an indemnity bond.
B. file a statement of dissociation with the Secretary of State.
C. execute a formal written agreement with the remaining partners.
D. demand that the partnership terminate.

Answer 36

B. File a statement of dissociation with the Secretary of State.

Question 37

Ending a partnership involves which of the following three steps?

A. Dissolution, winding up, and termination.
B. Dissociation, winding down, and consummation.
C. Failure, dividing up, and paying off.
D. Dissociation, agreement, and dissolution.

Answer 37

A. Dissolution, winding up, and termination.

Question 38

Nancy was a partner of a small business. She could see that the business was beginning to recover. Not wanting to lose her investment, she asked that the court require the partnership to withdraw at that time. Does a court have the authority to order a partnership to dissolve?

A. Yes. A court can dissolve a partnership when it is convinced that the partnership is unlikely to succeed.
B. Yes. Under the UPA, if a partner can show the court the business suffered a loss the year before the case was filed, the court can dissolve the partnership.
C. No. A court can only dissolve a partnership at the request of all the partners.
D. No. A court does not have the authority to dissolve the partnership.

Answer 38

A. Yes. A court can dissolve a partnership when it is convinced that the partnership is unlikely to succeed.

Question 39

Astrid and Razi formed a partnership in which they agree to share the profits 60% to Astrid and 40% to Razi. Losses will be shared:

A. equally, unless otherwise agreed.
B. 60% to Astrid and 40% to Razi, unless otherwise agreed.
C. according to their capital contributions to the partnership.
D. in whatever proportion provides the greatest tax advantage for the partners that year.

Answer 39

B. 60% to Astrid and 40% to Razi, unless otherwise agreed.

Question 40

Max, Jenny, and Craig are partners. They have purchased an elegant Victorian home and converted it into an office for their partnership. Craig decides to use the partnership’s office to host some evening parties. Craig has a sideline business of arranging expensive gatherings and charging each person a handsome price to attend these “elite” parties. When Max and Jenny find out what Craig is doing, they demand that he pay them for the use of the property. How much money, if any, is craig required to pay the partnership?

A. Nothing. He is free to use the partnership property for his own uses.
B. Nothing, but he will be removed from the partnership for violating his fiduciary duty.
C. He must turn over any profits he earned from this activity.
D. He must pay the fair market value for the use of the house.

Answer 40

C. He must turn over any profits he earned from this activity.