Q&A Hero

Q: A partner is under no duty to maintain the secrets of the business.

Q: In all partnerships, profits are shared according to the amount of capital contributed by each of the partners.

Q: Shawnequa is a partner of Cost Hydrohut LLP, an accounting limited liability partnership. One of Shawnequa's partners negligently audits a client, with the result that a bank that relied on the client's audited financial statements suffers damages when the client fails to repay the loan. The bank sues Cost Hydrohut, but its assets are insufficient to pay the entire damages. Will the bank be able to collect the remaining damages from Shawnequa's personal assets?

Q: Donna is a partner of Don-Tel Lawn Care, a partnership in the business of providing lawn care services. While mowing a lawn using a partnership mower, Donna negligently runs over a piece of metal, sending pieces of metal flying through the air. One piece hits the client's patio door and shatters the glass. Is Donna liable to the client? Are Donna's partners liable to the client?

Q: In a partnership, are partners liable for the crimes committed by another partner? Explain.

Q: A partner may personally profit from a partnership transaction when he or she deals in good faith with the partnership.

Q: A partner may not compete against the partnership unless he or she obtains consent from the other partners.

Q: Hannah is a managing partner of Andrusian Worldwide LLP, an accounting and consulting partnership. Acting within her implied authority, Hannah makes a contract for Andrusian to perform an audit for National Motors Company. The audit fee is $325,000. The performance of the audit takes more hours than Hannah expected, because Hannah has failed to determine the number of locations in which National Motors does business prior to setting the audit fee. As a result, Andrusian loses $50,000 on the audit. Has Hannah breached a fiduciary duty?

Q: Frazier and Roz are partners. Frazier contributes $30,000 to the partnership, and Roz contributes $10,000. They agree that Frazier will assume 70 percent of partnership losses and that Roz will assume 30 percent. They make no agreement about how to share profits. The partnership has a profit of $60,000 in its first year. How much of the profits is Frazier entitled to receive?

Q: Sharon and Martha are general partners in the SM general partnership. Sharon, acting with authority, negotiated and signed for a $500,000 loan to SM from a bank. SM has not repaid this loan. The bank can recover its loan from: A. Sharon only. B. SM and Sharon; they are jointly liable only. C. SM, Sharon, and Martha; they are jointly liable only. D. SM, Sharon, and Martha; they are jointly and severally liable.

Q: What form of partnership prevents the partners from being personally liable for the actions of the business? A. LLP B. Incorporation C. International Partnership D. Domestic Partnership

Q: Under which of the following circumstances will Rita be held liable for the crime of her partner? A. The partner's criminal tendencies were unknown to Rita. B. The partner's crime was outside the scope of the partnership's business. C. The state's criminal code does not view partnerships as legal entities. D. The partner's crime was authorized by Rita.

Q: Stella, Bob, and Chris are partners in Sole Services, a general partnership that operates a shoe store. One day Stella's ex-husband Dan comes into the store to buy shoes. Stella is still angry over the divorce. While Dan's back is turned to Stella, she stabs him with a knife, inflicting serious injuries. Dan wants to sue Stella, the partnership, and each partner. Who could be required to pay for Dan's injuries? A. Stella only B. Stella and the partnership only C. Stella and each partner D. Stella, the partnership, and each partner

Q: Kate is a partner in a limited liability partnership (LLP) which provides accounting services. Acting within her authority, Allie, who is one of Kate's subordinates, negligently provides accounting services to a client. The client sues the LLP and its partners. Which of the following is incorrect? A. The LLP is liable to the client. B. Allie is liable to the client, and the judgment may be satisfied out of her personal assets. C. Kate is not liable for Allie's negligence. D. Kate is liable to the client, and the judgment may be satisfied out of her partner's personal assets.

Q: How many partners must agree to modify a partnership agreement? A. All partners must unanimously agree. B. A majority must agree to the change. C. More than one but not necessarily a majority. D. Only one partner is needed to modify an agreement.

Q: What document gives authority to a managing partner to run the business? A. Articles of Organization B. Managing Articles C. Articles of Incorporation D. International Articles of Trade

Q: Which of the following is applied in determining the liability of a partnership and of the other partners for the torts of a partner and other partnership employees? A. Respondeat superior B. De facto C. Habeas corpus D. Juris privati

Q: A partnership's liability for the torts of a partner committed within the ordinary course of partnership business or within the authority of that partner is: A. joint and several. B. joint or several, at the option of the tort creditor. C. joint only. D. several only.

Q: Lloyd is a partner in an ordinary partnership firm in the business of providing tax services. While serving a client on behalf of the partnership, Lloyd's partner Janet intentionally understates the client's taxable income on a federal tax return. When the true income is reported a few years later, the client is required to pay a penalty. The client sues the partnership and its partners. Which of the following is correct? A. Janet is not liable to the client because she was acting on behalf of the partnership. B. Lloyd is not liable to the client, unless he authorized Janet to understate the client's income. C. The partnership is not liable to the client because the intentional tort is outside the scope of business. D. Janet is not liable to the client because she was acting in the ordinary course of business.

Q: Which of the following partnerships can be classified as nontrading partnership engaged in providing services? A. Dairy farming B. General contracting C. Real estate brokerage D. Manufacturing

Q: Which of the following is NOT true about the management powers of partners? A. A partner whose name is not on the signature card filed with the bank does not have apparent authority to issue checks. B. A partner's knowledge of material information relating to partnership affairs is imputed to the partnership. C. A partner has implied and apparent authority to indorse and cash checks drawn payable to the order of the partnership. D. A partner who has the authority to borrow money also has authority to issue negotiable instruments.

Q: Stella, Bob, and Chris are partners in Sole Services, a general partnership that runs a small shoe store. Stella and Bob want to buy the building that they are currently renting, but Chris does not agree. How will this disagreement be resolved? A. Sole Services will buy the building because this management decision can be made by a majority vote of the partners. B. Sole Services will buy the building because one partner can never stand in the way of the will of the majority of partners. C. Sole Services will not buy the building because this decision requires a unanimous vote of the partners. D. Sole Services will not buy the building because all partnership management decisions require a unanimous vote of the partners.

Q: Which of the following decisions must be approved by all the partners of a partnership business that provides accounting and auditing services? A. Buying paper supplies for the partnership. B. Making a contract to provide audit services. C. Borrowing money to repay a partnership debt. D. Hiring a secretary.

Q: Which of the following is true about partnership agreements? A. The removal or delegation of a partner's management power eliminates that partner's apparent authority. B. A partnership agreement may create classes of partners, some of whom may have greater voting rights. C. In large partnerships, decisions such as hiring employees and making contracts require the unanimous agreement of all partners. D. Unequal voting rights are often found in small partnerships.

Q: Which of the following is true about a nontrading partnership? A. Its regular business is buying and selling merchandise. B. It has no normal borrowing needs. C. It borrows money to avoid cash flow problems. D. It has an inventory.

Q: _____ occur(s) when partners accept an act of a partner who had no actual or apparent authority to do the act when it was done. A. Arbitration B. Defamation C. Indemnification D. Ratification

Q: Vernon and Josh are partners in an accounting firm. They agree that only Josh has authority to make contracts to perform audits of clients, an agreement known by Mantron Company. Nonetheless, Vernon and Mantron contract for the partnership to audit Mantron's financial statements. Vernon takes the contract to Josh, who reads it and says, "OK, we can perform the audit." In this situation, Josh has _____ the contract. A. nullified B. modified C. ratified D. transferred

Q: Don is a partner of the firm Shaw Associates, which offers recruitment services. Don entered into a contract with Bradman & Sons to sell the land on which the partnership business is situated for $85,000. Is this contract enforceable? A. Yes, because Don has apparent authority to enter into contract with Bradman & Sons. B. No, because Don has only express authority not actual authority. C. Yes, because Don, being a partner, has implied authority to enter into contract. D. No, because Don does not have the power to convey the partnership's real property.

Q: A trading partnership: A. borrows money to avoid cash flow problems. B. engages in providing services. C. has no substantial inventory. D. buys but does not sell merchandise.

Q: Together, express and implied authority constitute _____. A. fixed authority B. actual authority C. apparent authority D. traditional authority

Q: _____ authority exists because it seems reasonable to a third party that a partner has authority to do an act. A. Fixed B. Express C. Apparent D. Actual

Q: The apparent authority of a partner to bind the partnership in dealing with third parties: A. would permit a partner to submit a claim against the partnership to arbitration. B. must be derived from the express powers and purposes contained in the partnership agreement. C. will be effectively limited by a formal resolution of the partners of which third parties are aware. D. will be effectively limited by a formal resolution of the partners of which third parties are unaware.

Q: In a partnership, partners may give everyone notice of a partner's authority or limitation on a partner's authority by filing a(n) _____ with the secretary of state. A. special resolution B. Article of Organization C. memorandum of association D. Statement of Denial

Q: Helen and Casey are partners. Helen contributes capital of $20,000 to the partnership and Casey contributes $10,000. They agree that Helen will receive 60 percent of all profits and that Casey will receive 40 percent. They have not decided how to share losses. The partnership makes a loss of $7,000. What is Casey's share of the loss? A. $2,800 B. $4,200 C. $3,500 D. $5,500

Q: In the absence of a specific provision in a general partnership agreement, partnership losses will be allocated: A. equally among the partners irrespective of the allocation of partnership profits. B. in the same proportion that profits are shared. C. in proportion to the partners' capital contributions. D. in proportion to the partners' capital contributions and outstanding loan balances.

Q: Which of the following is true about implied authority? A. It is the sole determinant of a partner's actual authority. B. It is determined with reference to what is usual business for partnerships of the same general type. C. It exists because it reasonably appears to a third party that a partner has authority to do an act. D. It may contradict a partner's express authority.

Q: Express authority: A. is created by agreement of partners. B. is based on what is usual business for partnerships of the same general type. C. is the sole determinant of a partner's actual authority. D. is established only in writing.

Q: Jane and Ridge are partners in a computer animation firm. Jane retires from the firm, but tells Ridge it is OK to leave his name on the entrance door to the firm and in the telephone listing. Alex, a new client, visits the firm after telephoning the firm. Alex has seen Jane's name listed in the phone book along with Ridge's and the firm's names. He also sees Jane's name on the entrance door to the firm. Believing Jane is a partner with Ridge, Alex contracts to have the firm develop animation for his upcoming film. Ridge, however, never performs the contract. Alex sues Ridge and Jane. Is Jane liable to Alex?

Q: Sue has transferred her transferable interest of the partnership business to her creditor to discharge her debt. However, Sue is an efficient manager and she still manages the business, even after the transfer. Is she still a partner?

Q: 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 percent of the business, and Gillie and Taft 25 percent each. How should profits of $120,000 for the year be divided? A. Gillie $60,000, Taft $30,000, Dall $30,000 B. Gillie $40,000, Taft, $40,000, Dall $40,000 C. Gillie $30,000, Taft $60,000, Dall $30,000 D. Gillie $30,000, Taft $30,000, Dall $60,000

Q: Helen and Casey are partners. Helen contributes capital of $20,000 to the partnership and Casey contributes $10,000. They agree that Helen will receive 60 percent of all profits and that Casey will receive 40 percent. They have not decided how to share losses. The partnership makes a loss of $7,000. What is Helen's share of the loss? A. $2,800 B. $4,200 C. $3,500 D. $5,500

Q: Dr. Matt Fornfeld, a physician practicing as a sole proprietor, falls behind in his payments to First Bank, a creditor to whom he owes $275,000. First Bank agrees to take reduced payments from Matt, but wants more money if Matt's practice becomes more profitable. Matt agrees to pay First Bank at least $4,000 per month up to a maximum of 15 percent of his profits. Does this agreement make First Bank a partner with Matt?

Q: The sale of a partner's transferable interest in a business entitles the buyer to what rights? A. Distributions, like profit, that the selling partner was entitled to. B. The right to inspect the partnership's accounting books. C. The right to manage the partnership. D. The right to represent the partnership in a legal proceeding.

Q: Babs, Mindy, and Eric decide to leave a large accounting firm and start their own accounting business. What form of business should they elect?

Q: Selena joins Kona's management consulting business. They do not indicate whether Selena is Kona's partner, but Selena receives 34 percent of the profits of the business and makes decisions regarding which clients the business should accept. Two years later, Selena leaves the business to start a singing career. Selena claims she owns a portion of the value of the business. Is Selena correct?

Q: A partner's ownership interest is called _____. A. a partnership interest B. a shareholder interest C. a partnership liability D. a charging order

Q: Mr. Olive and Mrs. Pickle enter into a partnership to provide IT consulting services. The name of the business is IT Doctor. From the partnership account Mr. Olive purchases a laptop and an iPad. Who owns the laptop and iPad? A. Mr. Olive B. Mrs. Pickle C. The business IT Doctor D. The government

Q: An order charging all or part of the partner's transferable partnership interest with payment of the unsatisfied amount of the judgment is called a(n) _____. A. interim charge B. redeeming order C. charging order D. redeeming the charge order

Q: A mining partner's interest is: A. nontransferable. B. freely transferable. C. partially transferable. D. dissolved and later, transferred.

Q: Which of the following is true about the effect of purported partnerships? A. Purported partners share profits of the business. B. A purported partner does not have authority to make contracts for the partnership. C. A purported partner is liable on contracts entered into by third parties on their belief that he is a partner. D. A purported partner is not liable for the torts committed in the course of relationships entered by third parties who believed he was a partner.

Q: In many public meetings, John has proclaimed himself to be an equal partner of Chan's partnership business. Chan's business ran into financial difficulties. John and Chan approached a creditor to obtain loan. The creditor gave the loan based on a false presumption that John was a partner in the business too. Can John be made liable for the loan? A. Yes, because John is a close acquaintance of Chan; thus it is his ethical duty to help Chan during her financial trouble. B. Yes, because John is a purported partner; public representations of his partner status make him personally liable for the debt. C. No, because he is not legally a partner; the creditor should have checked the partnership agreement before advancing the loan. D. No, because John did not participate in the business; he was thus not a member of the partnership business.

Q: A partner's contribution is also called _____. A. partnership property B. partnership liability C. partnership cash flow D. partnership capital

Q: A loan made by a partner to partnership business is: A. a part of partnership capital. B. a part of the partnership's assets. C. a liability of the partnership business. D. a partner's contribution to the partnership business.

Q: Which of the following is incorrect concerning a joint venture? A. Joint ventures are limited to single projects. B. Joint venturers are personally liable for its debts. C. Joint ventures are created much like partnerships. D. Joint venturers have more implied and apparent authority than do partners in a partnership.

Q: If a third party deals with a person who appears to be the partner of another person, and the third party is harmed, it may recover damages under: A. the doctrine of purported partners. B. the general law for joint ventures. C. the doctrine of direct liability. D. the doctrine of respondeat superior.

Q: Which of the following is not essential to the formation of a mining partnership? A. Joint operation of property B. Joint ownership of a mineral interest C. Active physical participation in operations D. Sharing of profits and losses

Q: Which of the following is NOT a consequence of being a partner of a partnership? A. Partners are not liable for each other's torts. B. Partners are agents of each other. C. Each partner owns a portion of the value of the business. D. Each partner owes fiduciary duties to the partnership and to the other partners.

Q: According to the RUPA: A. partners have no liability for the obligations of the partnership. B. a partnership cannot sue or be sued in its own name. C. a partnership does not have a life apart from its owners. D. partnerships have continuity of existence.

Q: One of the most important factors in establishing co-ownership of the business is: A. making profits. B. sharing management. C. encouraging voluntary relationships. D. creating joint ventures.

Q: A joint venture is a(n): A. association limited to no more than two persons in business for profit. B. enterprise of numerous co-owners in a nonprofit undertaking. C. corporate enterprise for undertaking multiple projects of various durations. D. association of persons engaged as co-owners in a single undertaking for profit.

Q: A _____ is found when an arrangement is made not to establish an ongoing business involving many transactions, but is limited to a single project. A. corporation B. limited liability company C. partnership D. joint venture

Q: Regarding the formation of a general partnership, which of the following is not a legal requirement but has been described as "highly desirable"? A. A formal, written partnership agreement B. An oral agreement C. An exchange of mutual consideration D. An agreement limiting the liability of the partners

Q: A sole proprietorship lasts for how long if it continues to run unabated? A. For 100 years B. 10 years with an option to renew for another 10 years C. Till the death of the owner D. 30 years then the business has to be reformed

Q: Which of the following is not a necessary element of the definition of partnership according to the RUPA? A. Co-ownership of the assets used by the business B. Association of two or more persons C. Limited liability of partners D. Carrying on of a business

Q: A _____ is owned by shareholders who elect a board of directors to manage the business. A. limited liability company B. corporation C. partnership D. sole proprietorship

Q: Which of the following forms of business always imposes double taxation on the earnings of the business? A. A corporation B. A limited liability company C. A limited liability partnership D. A sole proprietorship

Q: Which of the following is NOT an essential characteristic of a limited liability company (LLC)? A. The LLC can elect to be taxed as a partnership or a corporation. B. Members' ownership interest is completely and freely transferable. C. Members have limited liability for the obligations of the LLC. D. The bankruptcy of one member does not dissolve the LLC.

Q: Abe and Carlos want to form a general partnership. What must they do in order to create this legal form of business? A. They must get a partnership license from the secretary of state. B. They must sign a written agreement and file it with the secretary of state. C. They must first orally agree to become partners and then formulate a contract. D. They can start a partnership without any formalities.

Q: The _____ is the preferred form of business for professionals and is especially good for consultants and auditors, allowing them management flexibility while insulating them mostly from personal liability. A. S Corporation B. LLLP C. LLC D. LLP

Q: Which of the following is true of a corporation? A. A corporation is not a tax-paying entity for federal income tax purposes. B. A corporation does not have a life separate from its owners and its managers. C. A corporation has the ability to attract capital, more than the limited partnership. D. A corporation is owned by partners who have founded the business and have the right to manage it.

Q: An S corporation: A. must have at least 100 shareholders. B. may have only one class of shares. C. has the ability to attract capital, more than the limited partnership. D. has the disadvantage of its shareholders being double taxed at the federal tax level.

Q: Which legal form of business has the ability to attract the greatest amount of capital from investors? A. A limited liability company B. A partnership C. A corporation D. A sole proprietorship

Q: A(n) _____ is a limited partnership whose partners have elected limited liability status for all the partners. A. corporation B. LLLP C. S Corporation D. LLP

Q: Partners of a partnership: A. are not liable for all the obligations of their partnership. B. are entitled to income of the partnership, which must be reported on their individual federal income tax returns. C. are not permitted to deduct partnership losses on their individual federal income tax returns. D. can create a partnership only by complying with a statute.

Q: A limited partnership: A. dissolves when a limited partner dies. B. may not have a corporation as a general partner. C. may be taxed either as a partnership or as a corporation. D. may be created by default.

Q: A _____ has one or more general partners and one or more limited partners. A. limited liability partnership B. professional corporation C. limited partnership D. limited liability company

Q: Which of the following is true about a limited partnership? A. A limited partnership has difficulties raising large amounts of capital. B. A limited partnership can be created only by complying with a state statute permitting limited partnerships. C. A limited partnership cannot be transferred to another person. D. Limited partners are liable for the obligations of the limited partnership after making their capital contributions.

Q: Which of the following is an advantage of a limited partnership? A. It has the ability to attract large amounts of capital. B. It is a nontax paying entity. C. It can be created by default. D. It cannot be transferred to another person.

Q: In a limited partnership, general partners: A. have the right to manage the business. B. are not liable for the firm's debts. C. are nonparticipating investors. D. cannot transfer their ownership interest.

Q: In a limited partnership, limited partners: A. play an active role in the management of the firm. B. do not pay federal income tax on their share of the profits. C. are passive investors. D. have unlimited liability for the firm's debts.