Q&A Hero

Q: Angela has just graduated and is ready to go on with her life. She loves good food and loves to party so she decides to combine her two loves and open a restaurant/bar. Although she has a lump sum of money she doesn't have management experience or management knowledge since she was a French major in school. When she approaches landlords to find a suitable place for her business they see that she is likely to not be successful on her own so they won't deal with her. What might she do to best accomplish her goal of restaurant/bar ownership?

Q: Stop Now LLP manufactures brake linings and sells their product to repair and maintenance shops for use as replacements for worn brakes. When Stop Now approaches Coastal Garage, they offer a very good price for their products. Coastal is a nationwide company and the order would be very large. The management at Coastal is very interested in dealing with Stop Now but is concerned with the LLP's limited liability protections for Stop Now's partners. What could Coastal due to protect themselves from the LLP's limited liability protections?

Q: Name some of the usual terms and conditions that a typical franchise agreement would address.

Q: Clark and Kent are attorneys and have formed an LLP. They take on various debts and obligations to operate the firm including an installment contract to purchase computers and copy machines for the office. The LLP law in their state provides for liability protection for innocent partners should another partner cause liability through a tortious act. Clark is sued by Lois for civil assault and battery after Clark improperly touches her during an office meeting to discuss her divorce in which Clark is representing her. The amount of her judgment exceeds the assets of the LLP and the LLP dissolves. What is Clark and Kent's liability for the judgment and other firm debts?

Q: In Lieberman v. Wyoming.com, LLC, Lieberman dissociated from the LLC and demanded cash for his share of the company. The remaining members voted to continue the company and the operating agreement discussed distribution in the cases of dissolution but not simple dissociation. The court decided that:A.fundamental common law rules of fairness should apply and Lieberman was due a fair share to be decided by independent business analysts.B.Lieberman had rightfully dissociated from the company but since the operating agreement was silent as to distribution should the company continue, he forfeited all rights upon dissociation and should receive nothing.C.if the operating agreement is silent as to an issue, the Uniform Limited Liability Company Act will control and in this case Lieberman gets his initial investment back but nothing above that.D.Lieberman had rightfully dissociated from the company but since the operating agreement was silent as to distribution and state LLC law was also silent regarding the issue, Lieberman gets no distribution for dissociation but retains his interest in the company until dissolution occurs.

Q: Which of the following is not true regarding a business trust? A.when a business trust is entered into, no public filing is required B.business trusts do not have officers or directors C.business trusts are nonstatutory business arrangements D.business trust beneficiaries are issued stock as evidence of their ownership rights in trust assets

Q: With regard to disclosures required by franchisors to prospective franchisees, which of the following is an incorrect statement? A.franchisors must provide evidence of the franchisor's financial stability B.franchisors must provide background information related to the franchisor's board of directors and officers C.franchisors must provide terms of ownership of intellectual property involved in the franchise agreement D.franchisors must provide evidence that the disclosure statements provided have been approved by the Federal Trade Commission

Q: In Servro Industries, Inc. v. Pizzillo, Pizzillo was a franchisee who signed an agreement with the franchisor Servpro, not to work for a competing company within 25 miles of his territory for a period of two years after the franchise terminates. Within the two year period after the termination of the franchise Pizzillo's wife opened a similar company which Pizzillo started to work for. Servpro sued to stop him from competing and the court said: A.the noncompetition clause could be enforced because Pizzillo was soliciting customers and acting to harm Servpro breaching fiduciary duties imposed by the contract even after termination. B.twenty five miles was an unreasonable distance that deprived Pizzillo's right to work and could not be enforced. C.since the company was owned by his wife, Pizzillo was not competing with Servpro. D.fiduciary and contractual duties cannot survive the termination of a franchise agreement and become unenforceable upon termination of the contract.

Q: Which of the following is not a true business entity? A.an LLC B.an LLP C.a franchise D.a sole proprietorship

Q: When an LLP is formed, who files the initial paperwork? A.an individual representing two or more persons desiring to start a new business B.the principal in a sole proprietorship already in operation C.a limited partnership already in operation D.a general partnership already in operation

Q: Which of the following would not generally be formed as an LLP? A.three frat brothers opening a bar B.two attorneys operating a law firm C.four licensed physical therapists running a clinic D.twenty CPAs running an accounting firm

Q: The Small Business Franchise Act provided franchisees each of the following protections except: A.the right to limited liability should the franchise fail as long as good faith, care and loyalty can be proven. B.a required 30 day period for the franchisee to cure contract defaults. C.freedom to work outside of the franchise as long as the franchisee does not work in competition with the franchise. D.the right to purchase materials from vendors cheaper than the franchisor as long as the quality is comparable.

Q: Business trusts are run by: A.members. B.managers. C.directors. D.trustees.

Q: If an LLP does not have a partnership agreement, the courts will look to the ________ to resolve internal management disputes. A.Revised Limited Liability Partnership Act or Limited Liability Partnership Act if the RLLPA is not adopted B.Revised Limited Liability Company Act or Limited Liability Company Act if the RLLCA is not adopted C.Revised Uniform Partnership Act or Uniform Partnership Act if the RUPA is not adopted D.common law

Q: Personal financial contributions may be required by previous agreement with regard to: A.LLCs. B.LLPs. C.business trusts. D.franchisors.

Q: LLPs are often currently used to protect family businesses as a way to: A.resolve management disputes. B.resolve capitalization disputes. C.resolve issues regarding transition from one generation to another. D.resolve issues of family fiduciary duties and rights to represent and bind the business.

Q: Franchisors must provide written disclosures about the franchise at least ________ before contracts or letters of intent are signed or any monetary investment takes place. A.10 days B.20 days C.30 days D.45 days

Q: Several people have decided to go into business as an LLC. To cover all contingencies, specifying what will constitute an act of dissociation and specifying the procedures upon dissolution would be included in the: A.certificate of organization. B.operating agreement. C.Uniform Limited Liability Company Act. D.common law because the members may not negotiate these rights.

Q: LLCs share characteristics in common with each of the following except: A.general partnerships. B.limited partnerships. C.corporations. D.sole proprietorships.

Q: Bud and Lou own and operate a bakery. They each perform all of the functions in the bakery from baking to cleaning up. They make decisions jointly and hold themselves out to the public as business equals. When starting the business, Bud contributed $60,000 and Lou $40,000 to capitalize the business. They have a written agreement stating that they will share profits equally, however; responsibility for losses will be allocated at 60% to Lou and 40% to Bud. If Helen slips and falls in the shop and gets a judgment for $100,000, how may Helen proceed?

Q: May a limited partner ever be held liable for partnership liabilities beyond the amount of their partnership contribution? Explain.

Q: Name and discuss the fiduciary duties owed by general partners to the partnership as set out in the Revised Uniform Partnership Act.

Q: Charlie and Mia have started selling t-shirts with iron on decals and lettering. They have no formal written agreement and simply decided to split all profits equally. Each has contributed $1,000 to the enterprise and since Mia will be doing all of the work, Charlie agrees that he will be responsible for 75% of any losses. Charlie does call in to make day to day decisions but Mia purchases the shirts, decals and lettering, operates the press and mans the store. Charlie stays home and smokes cigars and drinks scotch. Alan purchases one of their shirts and after wearing it all day discovers that the dye has run and his upper body is now blue. After bathing numerous times he finds that the blue dye will not wash out. Alan sues and is awarded $100,000 in damages. Charlie claims that there was no real business entity formed and that he should not be liable. How should the court decide?

Q: You have just graduated and you want to start your own business. You have a degree in horticulture so you have chosen to open a florist shop and plant nursery. What type of business entity will you choose and explain its benefits and detriments in detail.

Q: Name the three specific events that are deemed events of dissociation by the Revised Uniform Partnership Act considered to be the most common.

Q: You have been invited to become a member of a partnership. What are some of the considerations you need to assess in making a decision to become a general or limited partner?

Q: Thelma and Louise are roommates in college. Thelma loves to bake and makes incredibly tasty chocolate chip cookies. Louise suggests that they sell the cookies around campus and split the profits. They orally agree that Louise will advertise the cookies, provide decorative bags to put the cookies in and be responsible for deliveries around campus while Thelma will obtain the ingredients and do all the baking. They intend for the whole endeavor to be low key and informal. Have Thelma and Louise created a business entity and why is it important for them to fully understand their relationship?

Q: What process will the courts use to resolve a dispute between principals of a limited partnership in the absence of a written partnership agreement?

Q: How is the Revised Uniform Partnership Act similar to the Uniform Commercial Code in terms of gap filling?

Q: Which of the following does not require two or more principals?A.limited partnershipsB.limited liability partnershipsC.sole proprietorshipsD.limited liability companies

Q: Sam and Dave are going to open a sporting goods store. They sign a written limited partnership agreement naming Dave as a limited partner and Sam the general partner. Sam files a certificate of limited partnership with the state. Sam contributes $100,000 toward the startup while Dave contributes $200,000 and they agree to split profits evenly because Sam will be working in the store and operating the day to day business. About a month after they open, the business is not doing well so Dave starts becoming more involved. Soon he is requiring that Sam approve all purchases with him and Dave is actively directing Jack, the sole other employee. One day, Geoff, a customer, is injured when a bowling ball falls off a shelf and shatters his foot. Geoff sues and is awarded a judgment of $1 million. A.as this was a limited partnership, Sam is liable for $800,000 and Dave is liable for $200,000 B.Sam and Dave are each liable up to $500,000 each C.under the circumstances, Sam and Dave are both jointly and severally liable for the full $1 million D.whoever negligently secured the bowling ball on the shelf is liable for the $1 million liability

Q: A general partnership may be formed by: A.oral agreement. B.written agreement. C.either oral or written agreement. D.either oral, written or implied agreement.

Q: Roger is a limited partner in a business. To retain his limited liability protection he must not: A.participate in the approval of new partners. B.participate in the removal of existing partners. C.consult or be paid by the business. D.assume management responsibilities.

Q: Bill is a general partner in a four member limited partnership with two general and two limited partners. The partnership is silent with regard to the duration of the partnership and Bill wishes to retire. A.Bill may withdraw at any time and the partnership continues. B.Bill must give six months notice before being permitted to withdraw. C.The other general partner and the limited partner with the largest liability must agree to his withdrawal. D.The court must grant permission for him to withdraw since the agreement was silent and the other partners and third party customers of the partnership must be protected.

Q: In Clancy v. King, the plaintiff and defendant had operated a general partnership to promote certain literary works. Their partnership agreement contained standard language requiring the duty of diligence and care but specifically permitted the partners to freely compete against the partnership on an individual basis. The partnership entered into a very profitable agreement to have Clancy lend his name to fictional works of other authors taking advantage of Clancy's substantial fame and marketing power. Clancy retained the right to withdraw the use of his name at any time. Subsequent to his divorce from King, Clancy withdrew the use of his name from use in the agreement despite the lucrative nature of the agreement although the Clancy/King partnership continued to operate. Clancy's only participation in the agreement was the use of his name and no labor or other duties were required of him. King sued claiming a lack of good faith and the court decided: A.the partnership's clause allowing competition by a partner with the partnership violated common law principles and could not be enforced so Clancy could opt out of the illegal contract and King had no case. B.the partnership's clause allowing competition by a partner with the partnership violated RUPA standards and principles and could not be enforced so Clancy could opt out of the illegal contract and King had no case. C.the partnership agreement clause allowing individual competition was enforceable and preempted the duty to act in good faith so Clancy could add or withdraw his name pursuant to the contract without liability. D.the duty to act in good faith was not negated by the clause permitting competition so because Clancy withdrew his name solely to spite and injure his ex-wife he is liable to her and may not withdraw his name from the contract.

Q: Which of the following does not require a duty of care or good faith to other principals? A.a sole proprietorship B.a general partnership C.a limited partnership D.a family limited partnership

Q: Which of the following does not require the filing of a form with a governmental agency to come into existence? A.a general partnership B.a sole proprietorship C.a corporation D.a limited partnership

Q: Principals generally have no personal liability for the business entity's debts regarding: A.limited partnerships. B.limited liability partnerships. C.corporations. D.limited liability companies.

Q: Chris and Paul operate a business in which both have contributed $50,000 to the businesses capitalization. Chris makes all business decisions and Paul made Chris sign a partnership agreement saying that Paul is only liable for partnership debts up to $50,000. A.both are general partners B.Chris is a general partner and Paul is a limited partner C.Paul is a general partner and Chris is a limited partner D.both are limited partners

Q: Which of the following requires a formal filing to be recognized as a valid business entity? A.a sole proprietorship B.a general partnership C.a limited partnership D.all business entities require a formal filing to validly exist

Q: Lisa and Tara are operating a business as a general partnership without an express partnership agreement. Should a dispute arise, the courts will look to ________ to resolve the issue regarding operation of the partnership. A.the common law B.state contract law C.the Revised Uniform Partnership Act D.federal contract law

Q: A business which exists in fact although not formally recognized is referred to as being: A.de facto. B.de jure. C.de minimus. D.de legal.

Q: Mike lends money to Kathy as a business loan to Kathy who is capitalizing her start up sole proprietorship named Kathy's Things. If Mike must sue for repayment, he would sue: A.Kathy. B.Kathy's Things. C.Kathy and Kathy's Things. D.no one since the loan makes him a partner.

Q: Redrock GP has decided to go out of business. The sale of the partnership assets and the making of payments to creditors will occur during the ________ phase of the closing of a partnership. A.dissolution B.dissociation C.winding up D.termination

Q: A limited partnership requires: A.at least two general partners. B.at least two limited partners. C.a written limited partnership agreement. D.at least one general and one limited partner.

Q: A disadvantage of the sole proprietorship is: A.the difficulty of formation. B.the inflexibility of management and control. C.the unlimited liability of the principal. D.the double taxation that occurs.

Q: Regarding limited partners: A.they may withdraw from the partnership at any time but they forfeit their investment if they withdraw early. B.they may not withdraw before the time that the partners have agreed that the partnership will terminate. C.if the partnership agreement is silent as to notice require prior to termination, 90 days written notice will be required before the limited partner may withdraw. D.they must obtain a court order to withdraw because of their limited liability and its effect on the remaining partners and third parties dealing with the business.

Q: Dissolving a limited partnership requires: A.a unanimous vote amongst all partners. B.a unanimous vote of the general partners and a majority vote of the limited partners. C.a unanimous vote of the general partners and consent of any limited partner who owns a majority of the rights to receive a distribution as a limited partner. D.a unanimous vote of the limited partners and consent of any general partner who owns a majority of the rights to receive a distribution as a general partner.

Q: Harry wants to start a personal training business. He should choose a sole proprietorship entity if: A.he seeks limited liability. B.he seeks perpetual existence for the new company. C.he seeks the ability to raise capital by selling equity in the business. D.he seeks to avoid management conflict.

Q: Which of the following is not an option available to a general partnership seeking capitalization? A.borrowing money from one or more of the partners B.selling the right to a percentage of the profits to an investor C.selling ownership rights through the public markets D.borrowing money from a commercial lender

Q: A partnership is considered fully terminated: A.after dissociation. B.after winding up. C.after dissolution. D.after the termination certificate is properly filed.

Q: Stan and Frank have started a general partnership. Stan has contributed 95% of the startup capital and has the business experience and contacts while Frank's primary contribution is labor necessary to operate the business. Management decisions are jointly made. At the end of the year, the business has shown a $100,000 profit. They have no formal written partnership agreement. A.Stan is entitled to $95,000 and Frank gets $5,000 B.RUPA mandates that each get $50,000 C.RUPA mandates that Frank be paid a fair amount for his labor contribution and the remaining profits be split with 95% going to Stan and 5% going to Frank D.RUPA mandates that Frank be paid a fair amount for his labor contribution and the remaining profits be split equally between Stan and Frank

Q: With regard to taxation of partnerships: A.a partnership files a federal and state partnership tax return and pays taxes on its income. B.a partnership must file an information return. C.a partnership files a state partnership tax return and pays taxes on its income but no federal filing is required. D.partnerships have no tax filing responsibilities.

Q: In a general partnership: A.profits and losses must be split equally amongst the partners. B.an unequal split of profits may be agreed to based on the partnership agreement, but losses must be split equally. C.profits must be split equally, but losses may be split unequally based on the partnership agreement. D.profits and losses may be unequally split based on the partnership agreement.

Q: Bob, Carol and Ted have decided to go into businesses as a limited partnership importing and selling exotic spices. Bob and Carol will manage the business and Ted will have no role in the day to day operations. Bob and Carol contributed have each invested $500,000 and Ted has contributed the building and land that the business will be operated from. Alice, a customer, contracts a rare disease from a contaminated spice sold by the company and sues. Alice is awarded a judgment for $5 million. After she exhausts the assets of the partnership, having the property and building sold and seizing all other property, $3 million remains unpaid. A.Bob, Carol and Ted each owe $1 million and Alice must sue each for their part B.Bob, Carol and Ted each owe $3 million jointly and severally so Alice may sue one, two or all three for the $3 million balance C.Bob and Carol each owe $1.5 million and Alice must sue each for their part; Ted has no additional liability D.Bob and Carol each owe $3 million jointly and severally so Alice may sue one or both of them; Ted has no additional liability

Q: Jonathan has graduated and wants to start a business. Which business entity gives him the most complete and exclusive control over the business and any business decisions? A.sole proprietorship B.limited liability company C.corporation D.general partnership

Q: The Revised Uniform Partnership Act mandates that with regard to partnership debts and liabilities, general partners are: A.not personally liable for non-debt liabilities which may only be charged to the partnership but personally liable for debts. B.personally jointly liable for unpaid debts and liabilities. C.personally jointly and severally liable for unpaid debts and liabilities. D.not personally liable for debts or liabilities which may only be charged to the partnership.

Q: Frank and Jesse are operating as a general partnership. A question has arisen not covered under their partnership agreement and also not addressed by the Revised Uniform Partnership Act. What will the courts do to resolve the situation? A.dissolve the partnership and allow them to reform B.look to foreign partnership laws because RUPA encompasses all U.S. partnership law C.look to the common law D.look to the UCC for a gap filler

Q: Steve has opened a sole proprietorship bicycle shop. The business shows a net income of $100,000. Steve took a salary of $40,000. The remaining money is left in the bank. A.at tax time, the business pays taxes on $100,000 and Steve pays taxes on $40,000 B.at tax time the business pays taxes on $140,000 C.at tax time Steve pays taxes on $140,000 D.at tax time the business pays taxes on $70,000 and Steve pays taxes on $70,000

Q: Joint ventures are governed by the same legal principles as a general partnership.

Q: One disadvantage of a sole proprietorship business entity is that it is restricted to a single location and cannot expand.

Q: To date, every state in the union has adopted the Revised Uniform Partnership Act except the state of Louisiana.

Q: A limited partnership is required to have two or more limited partners.

Q: If a sole proprietorship loses money, the principal may deduct the losses from her own personal tax liability if any.

Q: The Revised Uniform Limited Partnership Act requires that there be a written partnership agreement regarding limited partnerships.

Q: An advantage of operating as a sole proprietorship is that personal liability for any business losses is limited to the owner's investment in the business.

Q: If a limited partner actively participates in day to day management of the business they may forfeit their limited partner status and lose their limited liability for debts and liabilities.

Q: In the absence of an agreement to the contrary, the Revised Uniform Partnership Act mandates that general partnership profits be split equally amongst the partners.

Q: If someone successfully sues a sole proprietorship, they must exhaust the businesses assets before they may go after the principal's personal assets.

Q: Robert and Philip are operating a general partnership. Under the Revised Uniform Partnership Act, if Robert rightfully or wrongfully dissociates from the partnership, the partnership continues to exist.

Q: Family limited partnerships are designed solely for estate planning and asset distribution for wealthy families.

Q: A limited partnership is formed by the limited partner filing a certificate of limited partnership with the appropriate state governmental authority.

Q: In United States v. Morton, Morton was declared a general partner despite all paperwork including tax returns naming her as a limited partner because of her conduct.

Q: Sole proprietorships may sell equity in the company in order to raise funds.

Q: A sole proprietorship automatically is dissolved when the owner dies.

Q: Mike is a limited partner in Big Blue, LP. The partnership agreement permits him to have a say in the removal of general partners and the blocking of new partners. This agreement will jeopardize his limited partner status.

Q: Under the Revised Uniform Limited Partnership Act, limited partners may act as consultants and may contribute their expertise to the limited partnership.

Q: Family limited partnerships are designed for parents and children to operate a business together while protecting family related assets.

Q: With regard to dissociation and dissolution, the Revised Uniform Partnership Act adopted and reserved the same general rules and procedures as its predecessor, the Uniform Partnership Act.

Q: Even if the parties have no intent to form or operate as a partnership, their conduct may result in the law recognizing them to be partners.