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Law
Q:
For federal income tax purposes, a limited liability company can choose to be taxed like a corporation.
Q:
A limited liability company is a citizen of every state of which its members are citizens.
Q:
Most states do not permit one-member limited liability companies.
Q:
A limited liability company must be formed in compliance with federal law.
Q:
A limited liability company offers the limited liability of a corporation.
Q:
Ron is a limited partner, and Steve is a general partner of Total Financial Management, a limited partnership. Steve manages the firm. Ron has some expertise in the area and believes that he could do a better job than Steve at managing, but he abstains from becoming actively involved. Why might he choose to keep away from management activities?
Q:
Don and Eve form a partnership. Eve's capital contribution is $10,000, and Don's is $15,000. The partnership agreement provides that profits are to be shared, with 40 percent for Eve and 60 percent for Don. Later, Eve makes a $10,000 loan to the partnership when it needs working capital. When the partnership is dissolved, its assets are $50,000, and its debts are $8,000. How should the assets be distributed?
Q:
Bruce is a general partner in Capitol Realty, LLLP, a limited liability limited partnership, which cannot pay its debts. Bruce is personally liable for the debts
a. in proportion to the number of partners in the firm.
b. to no extent.
c. to the extent of his capital contribution.
d. to the full extent.
Q:
Connie, Drew, and Ellen are the general partners of Foreign Auto Repair, a limited partnership. Connie dies. The partnership can
a. continue only after a distribution of its assets.
b. continue only as a general partnership.
c. continue only if Drew and Ellen consent.
d. not continue because Connie's death dissolves the firm.
Q:
Rick and Sandy are limited partners in Total Enterprises, a limited partnership. To avoid personal liability for partnership obligations, they must not
a. acquire an interest in the firm.
b. contribute property to the firm.
c. engage in activities independent of the firm's business.
d. participate in the firm's management.
Q:
Don and Elaine are limited partners in Great Stores, a limited partnership. In terms of the firm's books, Don and Elaine are entitled to
a. access in proportion to their participation in the management of the firm.
b. access to those parts that directly relate to their capital contributions.
c. no access.
d. total access.
Q:
Rob, Sue, and Tim agree to form a computer peripherals mail-order business. Rob agrees to manage the business and to assume full personal liability. Sue and Tim agree to invest in the firm but to be liable only to that extent. These three have formed
a. a general partnership.
b. a limited liability limited partnership.
c. a limited liability partnership.
d. a limited partnership.
Q:
Biotech Investments, LP, is a limited partnership. The partners sign an agreement purporting to state how the firm's profits and losses are to be divided. The profits and losses of the firm will be divided
a. according to the agreement.
b. equally, despite the agreement.
c. in proportion to capital contributions, despite the agreement.
d. in proportion to each partner's participation in the firm's management, despite the agreement.
Q:
Great Western Ranch is a family limited liability partnership (FLLP). In an FLLP, all of the partners must be
a. natural persons only.
b. natural persons or persons acting as fiduciaries for natural persons.
c. persons acting as fiduciaries for natural persons only.
d. related.
Q:
Ace Accountants, LLP, a limited liability partnership, does business in more than one state. Most likely, Ace's liability outside its state of formation will be determined by the law of
a. any "neutral" state.
b. the first state that enacted an LLP statute.
c. the state in which Ace was doing business when the liability arose.
d. the state in which Ace was formed.
Q:
Nora, Owen, and Paul are partners in Quality Financial Advisors (QFA). Nora quits QFA, with Owen and Paul's knowledge. Later, Owen and Paul sign a contract with Realty Offices. The contract is binding on
a. QFA, Owen, and Paul only.
b. QFA only.
c. Owen and Paul only.
d. no one.
Q:
Fact Pattern 36-1
Brad, Carlos, and Dora are general partners in Eastside Physicians, a medical clinic.
Refer to Fact Pattern 36-1. Brad's dissociation from the firm results in
a. the automatic termination of the firm's legal existence.
b. the partnership's buyout of Brad's interest in the firm.
c. the immediate maturity of all partnership debts.
d. the temporary suspension of the partnership's business.
Q:
Fact Pattern 36-1
Brad, Carlos, and Dora are general partners in Eastside Physicians, a medical clinic.
Refer to Fact Pattern 36-1. The partners decide to dissolve Eastside. Dora collects and distributes the firm's assets. This results in
a. nothing with respect to the firm's existence.
b. the continuation of the firm's business.
c. the termination of the firm's legal existence.
d. the temporary suspension of the firm's business.
Q:
Fact Pattern 36-1
Brad, Carlos, and Dora are general partners in Eastside Physicians, a medical clinic.
Refer to Fact Pattern 36-1. Carlos' assignment of his interest in Eastside to Friendly Credit Corporation results in
a. nothing with respect to Eastside's existence.
b. the automatic termination of Eastside's legal existence.
c. the immediate maturity of all of Eastside's debts.
d. the temporary suspension of Eastside's business.
Q:
Fact Pattern 36-1
Brad, Carlos, and Dora are general partners in Eastside Physicians, a medical clinic.
Refer to Fact Pattern 36-1. Brad, Carlos, and Dora decide to admit Edie as a new partner in Eastside Physicians. Edie's liability for partnership debts incurred before her admission is
a. limited to her capital contribution to the firm.
b. limited to her personal assets.
c. nothing.
d. unlimited.
Q:
Pat and Quinn sign a five-year partnership agreement to do business as "Pat's Landscaping Service." At the end of the fifth year, they decide to continue without specifying a new term. This partnership is terminable
a. at any time by either partner.
b. only after an additional five-year term.
c. only if Pat dissociates from the firm.
d. only if Quinn dissociates from the firm.
Q:
Tony is a partner in United Amusement, a new partnership. A United debt comes due. Tony is
a. not liable for the debt.
b. only liable for the debt up to the amount of his capital contribution.
c. personally liable only to the extent the other partners do not pay.
d. personally liable to the full extent of the debt.
Q:
Cody is a partner in Delta Accounting Service. Cody can inspect
a. all of Delta's books and records.
b. Delta's books and records only as the firm's management permits.
c. Delta's books and records only for a reasonable purpose.
d. Delta's books and records relating to Cody's capital contribution only.
Q:
Dave and Eve are partners in First-Place Athletic Supplies, which sells sports equipment. Dave manages the business. Unless the partnership agreement states otherwise, Dave is
a. entitled to compensation in proportion to its effect on the business.
b. entitled to compensation in proportion to the effort expended.
c. entitled to compensation in proportion to the effort required.
d. not entitled to compensation for his effort.
Q:
Holly holds herself out as the managing partner of Interstate Investments, a partnership, even though she has no connection to the firm, and obtains a loan based on this misrepresentation. Holly's default on the loan results in
a. Holly and Interstate's joint liability for the amount.
b. Holly's sole liability for the amount.
c. Interstate's sole liability for the amount.
d. neither Holly's nor Interstate's liability.
Q:
Quik Pizza is operated as a partnership. For tax purposes, Quik Pizza
a. is a tax-paying entity.
b. is required to file an information return but is not a tax-paying entity.
c. pays 1/2 of the taxes if there are two partners.
d. pays 1/4 of the taxes if there are three partners.
Q:
Ben, who runs a livestock breeding business, owes the Circle C Ranch $40,000. Ben agrees to pay the Circle C a percentage of his profits each month until the debt is paid. Because of this agreement, the Circle C is
a. Ben's creditor and partner.
b. Ben's creditor only.
c. Ben's partner only.
d. neither Ben's creditor nor his partner.
Q:
In a limited liability limited partnership, the liability of a general partner is the same as the liability of a limited partner.
Q:
In winding up a limited partnership, non-partner creditors are paid before the partners receive their capital contributions.
Q:
The death of a limited partner dissolves a limited partnership.
Q:
In a limited partnership, the liability of a general partner is limited to the amount of capital he or she has invested in the partnership.
Q:
A limited partner who participates in the management of the partnership may be personally liable to the firm's creditors.
Q:
The maximum amount of money at risk by a limited partner is the amount of his or her investment in the limited partnership.
Q:
In a family limited liability partnership, only persons related to each other may be partners.
Q:
A limited liability partnership must be formed in compliance with federal law.
Q:
In winding up a general partnership, partners receive distributions of profits before non-partner creditors are paid.
Q:
In winding up a partnership, partners can create new obligations on behalf of the partnership.
Q:
If a partnership's business is illegal, the firm will dissolve unless the partners decide to change the nature of the business and continue.
Q:
A partnership for a definite term cannot be dissolved before the expiration of the term.
Q:
A general partner is jointly, but not severally, liable for all partnership obligations.
Q:
Partners are subject to liability for partnership obligations only if they participate in the management of the partnership.
Q:
A partner may pursue his or her own interest without automatically violating the fiduciary duties that he or she owes to the firm.
Q:
A general partner is a co-owner of partnership property and has an interest in the property that can be transferred.
Q:
A partner has a right to complete information about the conduct of partnership business.
Q:
Unless otherwise specified in the partnership agreement, profits are shared in the same ratio as capital contributions.
Q:
Unless the partnership agreement states otherwise, a partner's vote in management matters is proportionate to his or her capital contribution.
Q:
General partnerships and limited partnerships receive the same treatment under the law.
Q:
International Exports, L.P., is a limited partnership, with $100,000 in declared but unpaid profits. International's creditors include Friendly Credit Corporation for $5,000 and Gwen, one of International's limited partners, also for $5,000. When Harry, one of International's general partners, decides to retire, the other general partners vote to liquidate and dissolve the firm. The limited partners, who are not asked their opinions, want International to continue in business and file a suit against the general partners to compel this result. Can the court order International to continue? If not, what is the priority of the distribution of International's assets on its dissolution?
Q:
Sally and Tom decide to go into business, selling discounted merchandise through their Web site "e-Buy." They sign a partnership agreement that requires Sally to contribute $12,000 and Tom to contribute $8,000 in capital to start the firm. The agreement also states that only Sally will have the authority to bind the partnership in deals with third parties, but the agreement says nothing about the management of the firm or a division of profits. Without Sally's knowledge, Tom tells United Computer Products, Inc., that he represents the firm and signs a contract with United to buy hard drives for resale on e-Buy. In the first year, e-Buy makes a profit of $50,000. What are the partners' rights with respect to the management of the firm? Is the partnership bound to the contract with United? Do the partners split the first year's profits? If so, how much is each entitled to?
Q:
Supreme Services, LP, is a limited partnership to which its partners, including Tina, have contributed capital. Supreme's creditors include United Company. On Supreme's dissolution, its assets will be distributed to pay
a. neither Tina nor United.
b. Tina and United proportionately.
c. Tina first.
d. United first.
Q:
Lee is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lee is personally liable for the debts
a. in proportion to the number of partners in the firm.
b. to no extent.
c. to the extent of his capital contribution.
d. to the full extent.
Q:
Fact Pattern 36-3
Ann is a limited partner and Bob is a general partner in Consumer Shoppes, a limited partnership that owns and operates a mall. Without Ann's consent, which is required under the partnership agreement, Bob sells the mall to Developing Realty, Inc., a firm in which Bob has an ownership interest. Ann files a suit against Bob, alleging breach of fiduciary duty.
Refer to Fact Pattern 36-3. Suppose that Ann alleges "a pattern of deceit, failure to disclose, and misrepresentation" on Bob's part, which caused her to suffer an economic injury. Under these circumstances, according to the court in Case 37.3, Smith v. Fairfax Realty, Inc., this conduct and this type of injury warrants
a. a nominal penalty.
b. a restorative penalty.
c. a substantial penalty.
d. no penalty.
Q:
Fact Pattern 36-3
Ann is a limited partner and Bob is a general partner in Consumer Shoppes, a limited partnership that owns and operates a mall. Without Ann's consent, which is required under the partnership agreement, Bob sells the mall to Developing Realty, Inc., a firm in which Bob has an ownership interest. Ann files a suit against Bob, alleging breach of fiduciary duty.
Refer to Fact Pattern 36-3. According to the court in Case 37.3, Smith v. Fairfax Realty, Inc., a general partner in a limited partnership has a fiduciary duty to
a. all of the firms in which he or she has an interest.
b. all of the firm's partners.
c. himself or herself only.
d. the other general partners only.
Q:
A-1 Capital, LP, is a limited partnership. An A-1 limited partner loses his or her limited liability if he or she
a. acts as the firm's manager.
b. has full awareness of the firm's business activities.
c. invests in the firm's competitor.
d. votes on the firm's sale or dissolution.
Q:
Alice, Bob, and Carol want to form a limited partnership to manage two restaurants: Alice's Restaurant and Bob's Deli. In most states, a limited partnership will be created when
a. a certificate of limited partnership is filed.
b. a partnership agreement is executed.
c. the business for which the firm is formed actually begins.
d. the partners make their capital contributions.
Q:
Mary, Nick, and Owen want to form a limited partnership to manage MN&O Services. A limited partnership must have at least
a. one general partner and one limited partner.
b. one general partner and two limited partners.
c. two general partners.
d. two limited partners.
Q:
Jan and Kay are partners in Law Firm, LLP, a limited liability partnership. Jan supervises Kay, who negligently fails to appear in court on behalf of Mike, a client. Under the principle of proportionate liability, Jan is liable for
a. Mike's entire loss.
b. the amount of any loss attributable to Jan's supervision of Kay.
c. the amount of any loss that Kay cannot pay.
d. nothing.
Q:
Jay is considering forms of business organization for Jay's Designs, an architectural firm. An advantage of a limited liability partnership is that partners can avoid personal liability for
a. any partnership obligation.
b. only other partners' wrongdoing.
c. only partnership obligations that exceed capital contributions.
d. only partnership obligations that fall within capital contributions.
Q:
Jim and Kyle are partners in J&K Sales, which exports computer equipment under a three-year partnership agreement. The U.S. government declares that the equipment can no longer be exported. J&K
a. dissolves by agreement as soon as the stated term expires.
b. dissolves by an act of the partners as soon as they agree.
c. dissolves by operation of law unless Jim and Kyle change the business.
d. does not dissolve under any circumstances.
Q:
Fact Pattern 36-2Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.Refer to Fact Pattern 36-2. Ira dissociates from Kappa. Jill signs a contract with Micro Drives, a wholesale component supplier, allegedly on Kappa's behalf. Micro knows of Ira's dissociation. The contract is binding ona. Hal, Jill, and Kappa only.b. Jill only.c. Kappa only.d. no one.
Q:
Fact Pattern 36-2
Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.
Refer to Fact Pattern 36-2. After Ira's dissociation, Hal and Jill dissolve Kappa. To avoid liability for any later purported Kappa obligations, all affected third parties
a. absolutely must be notified.
b. absolutely need not be notified.
c. could, but need not, be notified.
d. should, but need not, be notified.
Q:
Fact Pattern 36-2
Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.
Refer to Fact Pattern 36-2. Hal signs a contract with Macro Chips, a retail component supplier, allegedly on Kappa's behalf. The contract is binding on
a. Hal, Ira, Jill, and Kappa.
b. Hal only.
c. Kappa only.
d. no one.
Q:
Ben is admitted to Consolidated Associates, an existing partnership. A partnership debt incurred before the date of his admission comes due. Ben is
a. not liable for the debt.
b. only liable for the debt up to the amount of his capital contribution.
c. personally liable only to the extent the other partners do not pay.
d. personally liable to the full extent of the debt.
Q:
Dick, a partner in Eagle Dental Associates, applies for a loan with First State Bank allegedly on Eagle's behalf but without the authorization of the other partners. First State knows that Dick is not authorized to take out the loan. Dick's default on the loan results in
a. Dick and Eagle's joint liability for the amount.
b. Dick's sole liability for the amount.
c. Eagle's sole liability for the amount.
d. neither Dick's nor Eagle's liability.
Q:
Joy and Kelly are partners in a mail-order business that is in the process of dissolution. Both want to keep a certain desk after the business is wound up. Joy
a. has no preference over Kelly regarding the desk.
b. is entitled to the desk only if it was originally Joy's idea to buy it.
c. is entitled to the desk only if Joy asked for it first.
d. is entitled to the desk only if Joy bought it with partnership funds.
Q:
Kelly, Lars, and Mona agree to be partners in Neighborhood Delivery Service (NDS), splitting the profits equally. Kelly contributes 67 percent of the capital. When NDS is dissolved, its liabilities are greater than its assets. The losses are paid by
a. all of the partners in proportion to their capital contributions.
b. all of the partners in proportion to their shares of the profits.
c. Kelly because she contributed most of the capital.
d. Lars and Mona because they contributed the least of the capital.
Q:
Alan and Beth agree while talking on the telephone to form a partnership. Their partnership agreement is legally binding
a. only if a third person knows of the agreement.
b. only if the agreement is reduced to writing.
c. only if the parties exchange valid consideration.
d. without more.
Q:
Fact Pattern 36-1
Dean starts up E-Sites, an Internet service, and leases office space in a building owned by Fred. The lease requires Dean to pay Fred a base rental of $250, plus 10 percent of E-Sites' profits, each month. The term is two years. Dean hires Gina to work at E-Sites' tech support desk at an hourly wage of $9.00, plus a commission of 10 percent of the profits. The term is also two years.Refer to Fact Pattern 36-1. Dean and Gina are
a. not partners, because Gina does not have an ownership interest or management rights in E-Sites.
b. not partners, because the pay includes an hourly wage.
c. not partners, because the pay includes only 10 percent of the profits.
d. partners in a partnership for two years.
Q:
Fact Pattern 36-1
Dean starts up E-Sites, an Internet service, and leases office space in a building owned by Fred. The lease requires Dean to pay Fred a base rental of $250, plus 10 percent of E-Sites' profits, each month. The term is two years. Dean hires Gina to work at E-Sites' tech support desk at an hourly wage of $9.00, plus a commission of 10 percent of the profits. The term is also two years.Refer to Fact Pattern 36-1. Dean and Fred are
a. not partners, because Fred does not have an ownership interest or management rights in E-Sites.
b. not partners, because the lease includes a "base rental."
c. not partners, because the rent includes only 10 percent of the profits.
d. partners in a partnership for two years.
Q:
In a limited liability limited partnership, the liability of a general partner is limited to the amount of capital he or she has invested in the partnership.
Q:
When a limited partnership is dissolved, creditors are entitled to distributions of partnership assets before others are paid.
Q:
Only a limited partnership's limited partners have a fiduciary obligation to the other partners.
Q:
A limited partner who gives a general partner advice on matters relating to the management of the partnership cannot be liable as a general partner.
Q:
In a limited partnership, the liability of a limited partner is limited to the amount of capital he or she has invested in the partnership.
Q:
With a few exceptions, all of the rules that govern partnerships apply to limited liability partnerships.
Q:
In a limited liability partnership, a partner can be exempt from personal liability for partnership obligations.
Q:
A limited liability partnership can be formed in virtually any state.
Q:
In winding up a general partnership, creditors are paid before partners receive their capital contributions.
Q:
A partnership dissolves when a partner ceases to be associated with the carrying on of partnership business.
Q:
A partner cannot "wrongrfully" dissociate from a partnership.