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Question 1

What happens if the sole General partner dies in a Limited Partnership?

Answer 1

The death of a general partner will, by operation of law, dissolve the limited partnership. Because the dissolution is by operation of law, there is no
requirement of obtaining a judicial decree.

Remaining limited partners do not automatically become general partners as a result of the death of the general partner

Question 2

Liability of a General Partner in a Limited Partnership and General partnership

Answer 2

General partner in a limited partnership are personally liable for all obligations of the partnership. If the partnership does not pay then GP will be help liable for the amount owed.

• General partners in a general partnership have
  unlimited liability.

Question 3

how are profits divided among the partners if the partnership agreement is silent about division of P&L?

Answer 3

Profits are to be divided equally among the partners.

• If no provisions are made in an agreement, a GP allocated p&L based on the number of partner ( equally)

Question 4

Piercing the corporate veil

In a legal action, a shareholder of a corp. might be personally liable for the company’s debts if:

The shareholder’s personal interests are materially commingled with Company’s interests

Answer 4

Commingling shareholders’ personal assets and other interests with the corporation’s interests is a breach of corporate formalities designed to create and keep the corporation as a separate legal entity. Thus, it is a ground for reaching the shareholder’s personal assets (i.e., piercing the corporate veil).

Question 5

LLC- LIMITED LIABILITY COMPANY

Answer 5

• All Members have Limited Liability
• Members are not personally liable for the LLC’s obligations and the LLC ‘s assets are only liable.
• All Members may participate in Management and have the** right to participate in management.**
• Dissolve upon the death, dissolved upon the death, retirement, resignation, bankruptcy, etc.., of member.
• Formation requires the ARTICLES OF ORGANIZATION to be filed with the secretary of state.
• An operation agreement is an optional agreemwnt amoung members of the LLC setting out details of how the LLC will be run.
  *

Question 6

LIMITED PARTNERSHIP

Answer 6

• Must have at least 1 GP and 1 LP
• Genral partner has UNLIMITED Liability for all Limited partnership debts.
• Limited partners have a limited right to Manage.

Question 6

A promoter for a corporation is personally liable for any pre-incorporation contract until the corporation?

Assumes the Pre-incorporation contract by Novation

Answer 6

• In a novation, a new party (the corporation) is substituted for an old party (the promoter) in the contract. All parties must agree to the novation.
• Rejection of the contract does not affect the promoter’s liability.
• Technically, only a principal can ratify a contract made by an agent. Because the corporation is not in existence when the promoter acts, the promoter cannot be acting on the corporation’s behalf. Thus, the corporation is not the promoter’s principal and cannot “ratify” the promoter’s contract. Instead, the
  corporation is said to “adopt” a promoter’s contract. In any case, ratification/adoption does not release the promoter from liability; instead, it merely makes the corporation liable along with the promoter.
• The corporation does not have the power to release Promoter ; the other party to the contract must agree to the release as well.

Question 7

Banner and Smythe merged their competing retail service businesses, each of which previously had been operated as a sole proprietorship. Neither Banner nor Smythe filed any paperwork with the state. They agreed to equally share profits, management rights, and co-ownership rights. What is the status of the merged business?
A. General partnership
B. Joint venture
C. C corporation
D. Limited partnership

A. General partnership

A partnership is formed when two or more people join to operate,
as co-owners, a business for profit. No filing is necessary.

Answer 7

• A joint venture is like a partnership, but it usually involves a single transaction or project. Here Banner and Smythe did not come together for a
  single project but, rather, merged their separate retail businesses.
• Formation of a corporation requires appointment of directors and filing articles of incorporation with the state. This was not done here.
  Choice “D” is incorrect. Formation of a limited partnership requires an agreement that
  at least one partner shall serve as a general partner with unlimited liability and at least
  one partner shall be a limited partner with no liability beyond the partner’s investment.
  Formation also requires filing with the state. None of these requirements was met under
  the facts.

Question 7

S-Corp

Answer 7

• only one class of stock
• Only if shareholders are individuals , estates or certain types of trusts
• Only US Citizens and residents
• Only upto 100 shareholders

Question 7

Smith and James were partners in S and J Partnership. The partnership agreement stated that all profits and losses were allocated 60 percent to Smith and 40 percent to James. The partners decided to terminate and wind up the partnership. The following was the balance sheet for S and J on the day of the windup:

Cash $ 40,000
Accounts receivable 12,000
Property and equipment 38,000
Total assets $90,000
Accounts payable $24,000
Smith, capital 30,000
James, capital 36,000
Total liabilities and capital $90,000

Of the total accounts receivable, $10,000 was collected and the remainder was written off as bad debt. All liabilities of S and J were paid by the partnership. The property and equipment are sold for $32,000. Under the Revised Uniform Partnership Act, what amount of cash was distributed to Smith?

Answer 7

Upon termination of the partnership creditors are paid first. After payment of creditors, each partner is deemed to have an account that is charged or
credited an amount equal to the partner’s contribution plus or minus the partner’s share
of any profits or losses.

The agreement between Smith and James was that profits and losses would be allocated 60% to Smith and 40% to James.

• The partnership had $82,000 in assets
  ($40,000 in cash, $10,000 from accounts receivable, and $32,000 from property and
  equipment).
• The partnership had $90,000 in liabilities and capital.
• Of the $82,000 in assets, $24,000 is paid first to creditors.
• This leaves a balance of $58,000.
• Smith contributed $30,000 in capital and James contributed $36,000 in capital.
• With $66,000 owed in capital and only $58,000 available, there is a deficit of $8,000.
• By agreement, Smith is responsible for 60% of the $8,000 deficit or $4,800.
• Smith would be credited an amount equal to his capital ($30,000) minus his share of the
  loss ($4,800) or $25,200.

Question 8

if two people wants to form a partnership ,what should be in writing for partnership agreement to be enforceable ?

Answer 8

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

Question 9

Advantage of corporate form of doing business

Answer 9

• The operation of the business may continue indefinitely
• Articles of incorporation and bylaws are documents relating to corporation.

Question 10

To be dissolved general partnership regarding the distribution of assets at the end of the partnership existence

Answer 10

• Partners with negative capital accounts must contribute additional funds to partnership to make up for the shortfall
• During dissolution partnerships may not engage in any additional activity.
• Bankrupt partners are relieved of the obligation to pay most of their debts.
• Creditoes can seek payments from the partners if partnership does not have sufficient funds to pay obligations owed to creditors.

Question 11

CUMULATIVE VOTING

Answer 11

• To allow minority shareholders to gain representation on board of directors.
• Each share is entitiled to one vote for each director position that is being filled and the shareholders may cast the votes in any way, including casting all for a single candidate. Thereby helping the minority shareholders gain reppresentation on the board.

Question 12

what happens under RUPA , when a General partnership decides to dissolve and none of the partners would continue to use the partnerships name?

Answer 12

• Each partner continues to have their liability for partnership debts and would not be discharged.
• Each partner’s apparent authority would continue and can be negated (nullified ) upon proper notice to third parties.

Question 13

Fundamental changes that require stockholders consent in a corporation

Answer 13

• Consolidation
• Dissolution
• Merging

**Exception **
Purchasing 55% of another corporations stock can be quite insignificant to the purchaser and is not a fundamental corporate change.

Question 14

Joint Venture

Answer 14

• 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.
• A general partnership is like a joint venture, but it contemplates a broader relationship rather than one limited to a single transaction or a related series
  of transactions.

Question 15

Under FICA Federal Insurance contribution ACT the following will cause an employer to be liable for penalities?

Answer 15

• Failure to supply taxpayer identification numbers
• Failure to make timely FICA Deposits

Question 16

Worker’s compensation Benefits

Answer 16

• Only those employees injured while working within the scope of employment
• An employee is Precluded (not allowed ) from collecting full workers compensation benefits when the injury is caused by an intentional, self- inflicted action but allowed the benefits when he non-compliance with the employer’s rules ( not negligent)

Question 17

Duties and powers of the partners in a GP under RUPA

Answer 17

• Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the scope of the partnership agreement
• Each partner is subject to joint and several liabilities on partnership debt and contracts

Question 18

Apparent authority of a partner to bind the partnership in dealing with the third parties?

**May allow a partner to bind the partnership to representations made in connection with the sale of goods. **

Answer 18

• Apparent authority of one partner arises from the actions or statements of the partnership or another partner indicating to a third party that the first
  partner has authority. Moreover, a partner automatically has apparent authority to enter into any transaction apparently carrying on in the usual way the business of the partnership. Thus, if the partnership regularly sells goods, a partner would have apparent authority to make representations about the goods.
• Apparent authority can result from any statement made by the partnership to a third party indicating that the partner has authority.** Authority arising
  from express powers and purposes contained in the partnership agreement is actual authority, not apparent authority.**
• Apparent authority of the partner does not, by itself, allow the partner to submit a claim to arbitration. A partner has apparent authority only to carry on ordinary business, and submitting a claim to arbitration is an extraordinary event.
• Statements, resolutions, or agreements attempting to limit a partner’s apparent authority are not binding on the third party if the third party is unaware of them.

Question 19

Chapter 7 of the federal Bankruptcy code will deny a debtor a discharge when the debtor is a

Answer 19

Corporation or a partnership

• Chapter 7 discharge may be obtained every 8 years.
• The intentional destruction or failure to keep relavant records to the bankruptcy proceedings can result in denial.