BLTS-10e Practice Quiz

Chapter 27:

All Forms of Partnerships

1. How were partnerships treated under the common law?

  1. As separate legal entities.
  2. As aggregates of members.
  3. As corporations.
  4. As sole proprietorships.

ANS:

  1. Incorrect. Partnerships were never treated as separate legal entities under the common law.
  2. Correct. Under the common law, partnerships were treated as aggregates of individual members.
  3. Incorrect. Partnerships were not treated as corporations.
  4. Incorrect. Partnerships were not treated as sole proprietorships.

2. Kyle and Larsen enter into a partnership agreement to sell gourmet dog biscuits. They fail, however, to specify how long the partnership will last. In this situation:

  1. the partnership lasts for twelve months.
  2. the partnership is “at will.”
  3. the partnership is for one year plus one day.
  4. the partnership lasts for no less than four years.

ANS:

  1. Incorrect. The rule is that the partnership is “at will” and may be terminated by either partner at any time.
  2. Correct. This partnership is “at will” and may be terminated whenever Kyle or Larsen wish to do so.
  3. Incorrect. This partnership is not for one year plus one day.
  4. Incorrect. This partnership is not for four years.

3. Assume that Kyle and Larsen have a general partnership. In this situation, what rights does each have regarding the management of the dog biscuit business?

  1. One partner must be the superior in rights.
  2. They have equal management rights.
  3. One partner must conduct the partnership business, while the other provides the capital.
  4. The partner who put in more money has a bigger voice in management.

ANS:

  1. Incorrect. The partners have equal rights in management.
  2. Correct. Even though one partner may have contributed more money to the partnership than the other, Larsen and Kyle have equal management rights unless they agree otherwise.
  3. Incorrect. This is not the rule.
  4. Incorrect. Kyle and Larsen have equal management rights.

4. Assume that when Kyle and Larsen formed their partnership, Kyle contributed 80 percent of the capital, and Larsen, 10 percent. They did not agree, however, on what percentage of the profits each partner would receive. Further assume that they make $35,000 in profits in 2012. In this situation, what is Larsen’s share of the profits?

  1. $3,500.
  2. $10,000.
  3. $17,500.
  4. $35,000.

ANS:

  1. Incorrect. Larsen is entitled to one-half of the profits, or $17,500.
  2. Incorrect. Larsen is entitled to one-half of the profits.
  3. Correct. If a partnership agreement does not apportion profits, the Uniform Partnership Act provides that profits are to be shared equally. Thus, Larsen should receive one-half of the profits.
  4. Incorrect. Larsen is not entitled to all of the profits.

5. A partner’s fiduciary duty includes which of the following?

  1. Undue care.
  2. Duties of loyalty and care.
  3. Proximate care.
  4. That the partner always has to assume a management role.

ANS:

  1. Incorrect. The partner must refrain from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
  2. Correct. Partners must act consistently with the obligations of good faith and fair dealing.
  3. Incorrect. There is no such thing as proximate care.
  4. Incorrect. The partner does not always need to assume a management role.

6. After Koss, Schmidt, and Jacobsen have been partners for three years, Jacobsen declares bankruptcy. What will happen as a result?

  1. Nothing. The partnership will continue as always.
  2. Jacobsen will be dissociated from the partnership.
  3. The partnership will terminate due to the bankruptcy.
  4. The partnership will terminate due to withdrawal.

ANS:

  1. Incorrect. Jacobsen’s bankruptcy will dissociate him from the partnership.
  2. Correct. Bankruptcy of a partner dissociates that partner from the firm, but the partnership will continue without him.
  3. Incorrect. Bankruptcy of a partner will not terminate the partnership, but the partner who goes bankrupt will be dissociated from the partnership.
  4. Incorrect. Jacobsen did not withdraw and the partnership will not be terminated. Jacobsen’s bankruptcy will cause him to be dissociated from the partnership.

7. If Frank, a dentist who is a member of an LLP, negligently harms Kathy while attempting to complete a root canal, what is the liability of the other members of the LLP?

  1. If Frank was negligent, they are also liable.
  2. None of them will be liable.
  3. They will be liable only if Frank intended to harm Kathy.
  4. Only the supervising partner will be liable, if there is a supervising partner.

ANS:

  1. Incorrect. The partners, with the possible exception of a supervising partner, are not liable.
  2. Incorrect. If there is a supervising partner, he or she may be liable also.
  3. Incorrect. Even if Frank intended to harm Kathy, the other partners will not be liable.
  4. Correct. If there is a partner who supervised Frank while he committed this tort, that partner will also be liable, along with Frank.

8. In order for a limited partnership to be legally valid, it must:

  1. file articles of organization.
  2. file a certificate of limited partnership.
  3. file amended articles of partnership.
  4. have at least one general, and one limited partner; that's all.

ANS:

  1. Incorrect. This is what an LLC files.
  2. Correct. The limited partnership must file this document, which is similar to a corporate charter, with a designated state official.
  3. Incorrect. Partnerships, not limited partnerships, file articles of partnership.
  4. Incorrect. A limited partnership also needs to file documents with the state.

9. Generally speaking, what will the legal effect be of the personal bankruptcy of one limited partner?

  1. The partnership will not dissolve unless the partner’s bankruptcy leads to the bankruptcy of the limited partnership.
  2. The partnership will be dissolved.
  3. The partnership will be forced to liquidate.
  4. The partnership will begin winding-up procedures.

ANS:

  1. Correct. The bankruptcy of a limited partner does not dissolve a partnership unless it leads to the bankruptcy of the limited partnership.
  2. Incorrect. Generally speaking, the partnership will not be dissolved.
  3. Incorrect. Generally speaking, the partnership will not be forced to liquidate.
  4. Incorrect. Generally speaking, the partnership will not have to begin its winding-up procedures.

10. When a limited partnership becomes a limited liability limited partnership, which parties’ responsibilities change?

  1. The limited partners' responsibilities.
  2. The responsibilities of the general partners.
  3. The responsibilities of the members.
  4. The responsibilities of the secretary of state.

ANS:

  1. Incorrect. Limited partners' responsibilities remain the same.
  2. Correct. General partners will no longer be personally responsible for the partnership debts.
  3. Incorrect. Owners of an LLLP are not known as “members.”
  4. Incorrect. The responsibilities and role of the secretary of state remain the same.