TEST 4: CH 34

Question 1

Entrepreneur

Answer 1

• a person who forms and operates a new business either by himself or herself or with others

Question 2

Entrepreneurial Forms

Answer 2

• sole proprietorship
• general partnership
• limited partnership
• limited liability partnership
• limited liability company
• corporation

Question 3

Sole Prioprietorship

Answer 3

• the owner is actually the business

- all that is required for this is that one person is conducting a business

Question 4

True or False: You need permission from the federal government to run a sole proprietorship business.

Answer 4

• false, you don’t need state or federal permission

- no formalities needed (i.e. forms, certificates, licenses, etc.)

Question 5

What are the advantages of a sole proprietorship?

Answer 5

• easy to form and low cost
• owner makes management decisions
• owner receives all profit
• ownership can be easily transferred or sold

Question 6

What are the disadvantages of a sole proprietorship?

Answer 6

• capital is limited to personal funds and loan

- owner is legally responsible for all activities (biggest disadvantage)

Question 7

How is a Sole Proprietorship taxed?

Answer 7

• no taxes at business level

- earnings and losses are reported as ordinary personal income tax filing

Question 8

General Partnership

Answer 8

• voluntary association of two or more persons for carrying on a business as co-owners for profit
• formed with little or no formality

Question 9

Association

Answer 9

• two or more persons working without seeking profit

Question 10

True or False: A general partnership creates rights and duties among parties and within third parties.

Answer 10

• true

Question 11

True or False: A general partnership can use a fictitious name.

Answer 11

• true but they must file a fictitious name statement with the government and publish a notice in the newspaper
• cannot be similar to name used by another business

Question 12

Rights of General Partners

Answer 12

• right to participate in management
• right to share in profits
• right to compensation
• right to reimbursement
• right to return of loans
• right to return of capital contributions
• right to demand true and full information

Question 13

Duty of Loyalty (General Partners)

Answer 13

• partner should not act adversely to the interest of the partnership
• if a partner is disloyal any profit they make when disloyal is divided between remaining partners
• a disloyal partner could be expelled from the partnership by simple majority vote

Question 14

What are the forms of breach of loyalty in a General Partnership?

Answer 14

• self-dealing
• usurping a partnership opportunity
• competing with the partnership
• making secret profits
• breach of confidentiality
• misuse of partnership property

Question 15

Duty of Care (General Partnership)

Answer 15

• obligation to use same level of care and skill that a reasonable person would use
• breach of care is negligence

Question 16

Duty to Inform

Answer 16

• provide all information relevant to affairs of the partnership
• other partners are imputed with knowledge of all notices

Question 17

Duty of Obedience

Answer 17

• adhere to provisions of partnership agreement and decisions
• to accept any business, you need simple majority of partners to agree

Question 18

Action For An Accounting

Answer 18

• formal judicial proceeding in which the court is authorized to:
  1. review partnership and partners transactions
  2. award each partner his or her share of partnership

Question 19

Tort Liability

Answer 19

• unlimited personal liability for debts and obligations of partnership

Question 20

Joint and Several Liability

Answer 20

• for torts and breaches of trust
• plaintiff can sue each partner separately
• plaintiff can recover entire amount from all liable partners

Question 21

Contract Liability

Answer 21

• unlimited personal liability for contracts of partnership

Question 22

Joint Liability

Answer 22

• for contracts and debts of partnership

- plaintiff must name all partners as defendants in a lawsuit

Question 23

Liability of Incoming Partners

Answer 23

• liable to debts and obligations only to extent of capital contribution
• if new partner comes in after establishment of partnership, new partner is only liable for amount invested to partnership

Question 24

Liability of Outgoing Partners

Answer 24

• liable for debts and obligations incurred at time of issolution
• not liable for new debt and obligation incurred after dissolution

Question 25

Dissolution of General Partnership

Answer 25

• change in the relation of partners caused by any partner ceasing to be associated in the business

Question 26

Winding Up

Answer 26

• liquidation of partnership assets and distributing the proceeds to satisfy claims against the partnership
• partnership cannot accept any new business
• must complete all existing business

Question 27

Wrongful Dissolution

Answer 27

• partner withdraws from partnership prior to expiration of the term

Question 28

Who gets a notice of dissolution?

Answer 28

• third parties who have dealt with the partnership must get actual notice
• third parties who have not dealt with business but have knowledge of it must get actual or constructive notice

Question 29

Distribution of Assets

Answer 29

• after all work is completed
• if there is no written partnership agreement, all partners share profits equally (if written agreement exists, profits could be shared unequally)

Question 30

How are debts satisfied after dissolution of partnership?

Answer 30

• creditors
• creditor-partners
• capital contributions
• profits

Question 31

True or False: If partnership cannot satisfy claims, partners are not liable.

Answer 31

• false, partners are personally liable if the partnership cannot satisfy claims