R8 Questions Flashcards
The partners of College Assoc., a general partnership, decided to dissolve the partnership and agreed that none of the partners would continue to use the partnership name. Under the Revised Uniform Partnership Act, which of the following events will occur on dissolution of the partnership? Each partner's existing liability would be discharged Each partner's apparent authority would contine a. Yes; Yes b. No; Yes c. No; No d. Yes; No
B. I chose A. it’s important to realize that just because a partnership is dissolved does not mean that their liabilities will go away. When a SOLVENT partnership is dissolved, the assets are turned into cash, the cash is used to pay off the partnerships’ liabilities to the creditors. Under a general partnership, each partner is personally liable for the debts incurred within the ORDINARY course of business of the partnership with contracts and also with torts.
In contrast, a limited liability partnership (LLP), the partners are generally not PERSONALLY LIABLE for debts and contractual obligations. They are only liable to the extent of their capital contributions and PERSONALLY liable for the torts of themselves or those under direct control.
So essentially, the most they can lose is their investment in the partnership as long as the crime committed wasn’t a tort. Also, they are only liable for their own negligence (tort) and the negligence of those under their direct control.
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? a. $25,200 b. $34,800 c. $26,000 d. $30,000
A. I chose B. It’s important to realize that you don’t pro rate the amount of contributed capital that each one gets back, if there is a deficiency. Both partners are entitled to their full amount, we need to pro rate the amount of profits or losses after ALL of the capital contributions and the AP is paid off. Then you pro rate that amount and subtract from the amount that they must get back.
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. Only choice “a” reflects this amount.
Generally, a partner who devotes his time and energy to partnership business will:
a.
Be entitled to compensation if the partnership agreement is silent.
b.
Not be entitled to compensation if the partnership agreement is silent.
c.
None of the above.
d.
Be entitled to compensation if he or she is an equity partner.
B. I chose C. it’s important to realize that partners are entitled to share in the profits of the partnership but are not entitled to compensation unless otherwise agreed to in the partnership agreement or in the case of winding up by the surviving partner.
What business entity can be voluntarily dissolved and terminated only by filing a dissolution document with the state of organization? a. A corporation. b. A limited partnership. c. A limited liability limited partnership. d. A general partnership.
A. I chose D. It’s important to note that a general partnership doesn’t require anything formal to become dissolute other than an event that dissolves it. With a LP or an LLP, they do require a formal formation with the state and they require a certificate of dissolution AFTER the entity has dissolved, but here the question is asking what entity can filing CAUSE the dissolvement of the entity.
On the other hand, voluntary dissolution of a CORPORATION requires the filing of articles of dissolution with the state.
Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership?
a.
Directors owe fiduciary duties to the corporation and limited partners owe such duties to the partnership.
b.
Stockholders may be entitled to vote on corporate matters but limited partners are prohibited from voting on any partnership matters.
c.
A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organizational document with the proper governmental body.
d.
Stock of a corporation may be subject to the registration requirements of the federal securities laws but limited partnership interests are automatically exempt from those requirements.
C. I chose D. it’s important to realize that both a corporation and an LP must each file a copy with of it’s formation with the proper gov’t body.
There is nothing automatically exempt from the requirements of registering of the federal securities (Act 1933 and Act 1934)
Aarons Group, Limited Partnership, was formed by three brothers, Aaron, Barry, and Sam. Aaron is the general partner and devotes more than 60 hours per week to the business. Barry and Sam are limited partners who work for different companies having no relationship to the limited partnership. The partners’ capital contributions are as follows: Aaron invested 20%. Barry and Sam invested 40% each.
During the formation of the limited partnership, the brothers signed an agreement that addresses how the brothers will split profits and losses. At year-end, the limited partnership enjoyed large profits due to high demand for the business’ product line.
The profits will be divided:
a.
By determining by the amount of time and labor each partner devoted to the operation of the partnership.
b.
In proportion to each partner’s capital contribution.
c.
Equally.
d.
According to the agreement.
D. I chose B. It’s important to realize that there is an agreement in this case, so that will have greater priority than the usual law, which is in proportion to each partner’s capital contribution.
Partners in a limited partnership can agree as to how they will split profits and losses, with losses shared up to the amount of the limited partners’ capital. Profits and losses are shared on the basis of percentages of capital contributions only in the absence of an agreement otherwise.
Jeb, a member in J & S LLC, sold his interest in the LLC to Chris without obtaining the other members’ consent. Absent an agreement to the contrary, Chris:
I.May participate in the management of J & S.
II.May receive Jeb’s share of J & S’s profits.
III.Is not entitled to anything since Jeb did not obtain the other members’ consent.
a. III only.
b. II only.
c. I and II only.
d. I only.
B. I chose A. It’s important to realize that like GPs, LP & LLPs, you cannot transfer an interest in the LLC without getting consent from the other members. Similarly, the assignee is essentially entitled to the assignors share of profits, BUT they cannot participate in management of the LLC.
With LLCs there are interests in both profits and an interest in management.
This differs from a Corporation.
Which of the following statements is correct regarding a limited liability company’s operating agreement?
a. It is necessary for a limited liability company to exist. b. It must be filed with a central state agency. c. It must be in writing. d. It is designed to forestall and resolve disputes among the owners.
D. I chose A. It’s important to realize that an operating agreement is OPTIONAL, but an article of organization is REQUIRED and must be filed with the state.
An operating agreement is an optional agreement among members of a limited liability company (LLC) setting out the details of how the LLC will be run.
Dowd, Elgar, Frost & Grant formed a general partnership. Their written partnership agreement provided that the profits would be divided so that Dowd would receive 40%, Elgar 30%, Frost 20%, and Grant 10%. There was no provision for allocating losses. At the end of its first year, the partnership had losses of $200,000. Before allocating losses, the partners’ capital account balances were: Dowd, $120,000; Elgar, $100,000; Frost, $75,000; and Grant $11,000. Grant refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law.
After losses were allocated to the partners’ capital accounts & all liabilities were paid, the partnerships’ sold asset was $106,000 in cash. How much would Elgar receive on dissolution of the partnership?
A. $37,000
B. $40,000
C. $47,500
D. $50,000
40% 30% 20% 10%
D E F G Total
Beg. cap. bal. 120,000 100,000 75,000 11,000 306,000
Pshp. losses (80,000) (60,000) (40,000) (20,000) (200,000)
40,000 40,000 35,000 (9,000) 106,000
G’s loss (4,000) (3,000) (2,000) 9,000 -0-
Dist. of cash 36,000 37,000 33,000 -0- 106,000
-First you have to adjust the partners capital accounts, then reallocate the amount of loss that each partner will pay. And then G doesn’t get anymore cash contributions from the $106,000, his comes from the other partners.
Remember when allocating G’s loss you have to reallocate the remaining partners (40%/(100-10%) for D, 30%/90% for E, and 20%/90% for F), and these same allocations also apply to the distribution of the cash.
Wind, who has been a partner in the PLW general partnership for four years, decides to withdraw from the partnership despite a written partnership agreement that states ‘no partner may withdraw for a period of 5 years” Under the Uniform Partnership Act, what is the result of Wind’s withdrawal?
A. Wind’s withdrawal causes a dissolution of the partnership by operation of law
B. Wind’s withdrawal has no bearing on the continued operation of the partnership by the remaining partners
C. Wind’s withdrawal is NOT effective until Wind obtains a court-ordered decree of dissolution
D. Wind’s withdrawal causes a dissolution of the partnership despite being in violation of the partnership agreement
D. I chose B. It’s important to realize it asks for the UNIFORM PARTNERSHIP ACT, not the most recent RUPA. Therefore, we have to remember that under the UPA, a withdrawal from the contract, bankruptcy and death of a partner dissolves the partnership. The RUPA gives the partners a chance (90 days) to decide if they want to continue or not.
- Enforcement proceedings under the Sherman Act may not be brought by the:
a. U.S. Commerce Department.
b. U.S. Justice Department.
c. Federal Trade Commission.
d. state Attorneys General.
A. D is an example of a private party suit
Under Section 1 of the Sherman Act, which of the following is illegal per se?
a. Vertical market allocations
b. Horizontal market allocations
c. Vertical territorial and customer restrictions
d. (b) and (c)
B.
Margaret tells the members of the Raleigh Association of Restaurant Owners that they will be able to get a better price on linen supplies (tablecloths, napkins) if they will deal with one supplier rather than split their business between two. They all know Margaret deals with Niagara Linen rather than Cayuga. Under the Sherman Act, if they all sign contracts with Niagara:
a. there is no violation since there is no express agreement to boycott Cayuga.
b. illegality may be implied from this conduct.
c. there is no concerted action.
d. this is horizontal market allocation.
B. If they could prove that Margaret intended to eliminate the competitor by the rule of reason, then it would be illegal.
If Hyvac Vacuum Cleaners requires that Hyvac bags be used for the warranty to be valid, under the Sherman Act, this is:
a. illegal per se.
b. a tying arrangement judged by rule of reason.
c. a vertical customer restriction.
d. no violation.
B. Vertical because it is demonstrated to the customers. They are not exercising extensive economic power because they are not getting more customers or entering into a market they normally wouldn’t be entered into–>rule of reason.
-If the seller had considerable economic power in the tying product, then it’s illegal per se.
Sareno Cheese Co. supplies mozzarella cheese to pizza restaurants at $1.50 per pound. In order to snare the business from a pizzeria, Sareno offers to sell them cheese at $1.25 per pound. This will violate the Robinson-Patman Act unless:
a. the pizzeria can already get the cheese for $1.15 elsewhere.
b. Sareno can show it is cost justified because of quantity.
c. Sareno lowers the price to all its customers.
d. Two of the above, (b) and (c)
e. Any of the above
E. If the pizzeria can already get the cheese for $1.15 elsewhere, then Sareno is just lowering their price and doesn’t even meet compeition.
-The Act allows price differentials that are justified by proof of either a cost savings to the seller or a good-faith price reduction to meet the lawful price of a competitor
- Price discrimination is okay if you are just MEETING competion, but not BEATING competition. If you beat competition, you have to lower it for all companies.
- If they can justify that it is only lowering the quantity because it costs less to ship/make, then this is okay.
