Question 1

Which statement is correct regarding the liability of a partner for a mistake?

Accepted Answer

A)   A partner who makes an honest mistake in fulfilling his or her responsibilities to the partnership is not held personally liable for the mistake.
B)   A partner who makes an honest mistake in fulfilling his or her responsibilities to the partnership is held personally liable for the mistake, but only to the extent of his or her capital contribution.
C)   A partner who makes an honest mistake in fulfilling his or her responsibilities to the partnership is held personally liable for the mistake, but only to the extent that he or she shares in profits.
D)   A partner who makes an honest mistake in fulfilling his or her responsibilities to the partnership is held personally liable for the mistake, but only to the extent that he or she shares in losses.
E)   A partner who makes an honest mistake in fulfilling his or her responsibilities to the partnership is held fully personally liable for the mistake.F) B) and C)
G) None of the above

Question 2

If the articles of partnership do not address the matter, which of the following is a true statement regarding the right of a partner to sell their interest in the partnership to a creditor?

Accepted Answer

A)   Partners can sell his or her interest in a partnership to a creditor.
B)   Partners cannot sell any of his or her interest in a partnership to a creditor.
C)   Partners can sell 50% of his or her interest in a partnership to a creditor.
D)   Partners can sell up to 49% of his or her interest in a partnership to a creditor.
E)   If a partner wants to sell their interest to a creditor it can only be if the partner is about to claim bankruptcy.F) A) and D)
G) None of the above A

Question 3

[Mortuary Blues] Jack and Bianca had a partnership running a mortuary. Bianca died, and after her death, Jack decided to shut down the mortuary. Jack incurred some expenses in closing the business affairs of the mortuary. He sought compensation for those expenses but Gus, the executor of Bianca's estate, objected. Gus also claimed that Jack had no rights in Bianca's share of the partnership property and that Gus, the executor, had the right to confiscate her share of the property and sell it at auction. Jack, however, took the position that all interests of Bianca passed to Jack and that Jack owed her estate nothing. The articles of partnership did not address death.
-Is Jack correct that he owed Bianca's estate nothing?

Accepted Answer

A)   Yes, because all rights passed to him at the time of her death.
B)   He is correct only if Bianca's will was silent on the matter.
C)   He is correct only if he, not Bianca, was the managing partner.
D)   No, he is incorrect because he had a duty to account to Bianca's estate for the value of Bianca's interest in specific property.
E)   No, he is incorrect because he had a duty to give the executor half the caskets, etc. on hand when Bianca died as well as half of all accounts due.F) C) and E)
G) C) and D)

Question 4

Regarding partnership property rights, which of the following statements is false?

Accepted Answer

A)   Any property brought into the partnership is considered property of the partnership.
B)   Any property acquired by the partnership is considered property of the partnership.
C)   Any property in the name of an individual partner that was purchased with partnership funds is considered partnership property.
D)   A partner may use partnership property to pay a personal debt.
E)   Each partner has the right to possess partnership property.F) C) and D)
G) A) and B)

Question 5

[Partnership Agreement] Rufus, Sven, and Igor are partners in a Health Club. They executed a partnership agreement ten years ago. Rufus and Sven want to grow the company and approach Igor with their ideas. First, they want to add two partners into the partnership who have extensive capital. Second, they want to move the club into a new direction, by adding a restaurant and a casino. Third, they want to purchase new exercise equipment from SportsCo. Igor doesn't want to add new partners and despises the idea of adding the restaurant and casino. Igor agrees that new equipment is needed, but insists they continue to purchase equipment from HealthCo. Rufus and Sven tell Igor, that he's outvoted and also tell him they want to revise the partnership agreement's provision regarding mandatory retirement.
-Can Rufus and Sven change the partnership agreement if Igor votes against doing so?

Accepted Answer

A)   Yes, because they have a majority vote.
B)   No, because a written partnership agreement cannot be amended.
C)   No, partnership decisions must be made by 4/5 majority.
D)   Yes, as long as the change to the partnership agreement does not negatively affect any partner.
E)   No, because all partners must agree with a change to an element of a partnership agreement.F) A) and E)
G) D) and E) E

Question 6

In regards to the rights of partners to share in profits, if the partnership agreement does not establish how the partnership will distribute profits,

Accepted Answer

A)   distribution of profits is suspended until a court can allocate the proper distribution amount.
B)   partners share in profits in proportion to the amount of capital contributed to the partnership.
C)   partners share in profits in proportion to their status as senior, full, associate or junior status in the partnership.
D)   all partners have a right to a share in the profits equally.
E)   the partnership must allocate profits based only on a written agreement.F) A) and E)
G) All of the above

Question 7

[Partnership Agreement] Rufus, Sven, and Igor are partners in a Health Club. They executed a partnership agreement ten years ago. Rufus and Sven want to grow the company and approach Igor with their ideas. First, they want to add two partners into the partnership who have extensive capital. Second, they want to move the club into a new direction, by adding a restaurant and a casino. Third, they want to purchase new exercise equipment from SportsCo. Igor doesn't want to add new partners and despises the idea of adding the restaurant and casino. Igor agrees that new equipment is needed, but insists they continue to purchase equipment from HealthCo. Rufus and Sven tell Igor, that he's outvoted and also tell him they want to revise the partnership agreement's provision regarding mandatory retirement.
-Can Rufus and Sven move forward with the purchase of new equipment from SportsCo, over Igor's insistence on purchasing the equipment from HealthCo?

Accepted Answer

A)   Yes, because most partnership decisions are made by majority vote and this decision does not involve an alteration in the nature of the business.
B)   No, because decisions that involve an alteration in the nature of the business require a unanimous vote.
C)   No, although most partnership decisions are made by majority vote, this decision involves an alteration in the nature of the business.
D)   Yes, but only if all material facts about the restaurant and casino have been disclosed to Igor.
E)   No, alterations to the nature of the business require a unanimous vote.F) A) and B)
G) B) and E)

Question 8

________ is an association of two or more persons to carry on as co-owners of a business for profit.

Accepted Answer

A)   A joint operation
B)   A combined partnership
C)   A partnership
D)   A joint business arrangement
E)   A primary partnershipF) A) and D)
G) None of the above

Question 9

[Partnership Agreement] Rufus, Sven, and Igor are partners in a Health Club. They executed a partnership agreement ten years ago. Rufus and Sven want to grow the company and approach Igor with their ideas. First, they want to add two partners into the partnership who have extensive capital. Second, they want to move the club into a new direction, by adding a restaurant and a casino. Third, they want to purchase new exercise equipment from SportsCo. Igor doesn't want to add new partners and despises the idea of adding the restaurant and casino. Igor agrees that new equipment is needed, but insists they continue to purchase equipment from HealthCo. Rufus and Sven tell Igor, that he's outvoted and also tell him they want to revise the partnership agreement's provision regarding mandatory retirement.
-Are Rufus and Sven correct that Igor is outvoted?

Accepted Answer

A)   Yes, partnership decisions are made by majority vote.
B)   No, partnership decisions must be unanimous.
C)   No, partnership decisions must be made by 4/5 majority.
D)   Rufus and Sven are correct as to some decisions, but some partnership decisions require agreement by all partners.
E)   Yes, because all partnership decisions, other than the decision to terminate the partnership, must be made by majority vote.F) B) and D)
G) D) and E)

Question 10

Partnership by estoppel is not recognized by most states.

Accepted Answer

A) True 
 B)False

Question 11

Each partner has unlimited personal liability for the obligation, if a partner has authority to act and the partnership is bound by the act giving rise to the obligation.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is false regarding the implied authority of partners?

Accepted Answer

A)   Partners generally have less authority than typical agents.
B)   The implied authority of partners is usually determined by the nature of the business.
C)   Implied authority permits partners to enter into agreements necessary to carry on partnership business.
D)   A partner has the authority to purchase goods necessary to perpetuate the business.
E)   A partner does not have implied authority to sell partnership property without the consent of all other partners.F) C) and D)
G) All of the above

Question 13

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership.
-Under the UPA, if a partnership is liable, what is the liability of each partner?

Accepted Answer

According to UPA, if a partnership is liable, each partner has unlimited personal liability. That is, all partners are jointly liable for the partnership's debts. As a general rule, if the partnership is liable, all partners are liable for the debts of the partnership. Furthermore, all partners are liable for a tort or breach of trust committed by a single partner.

Question 14

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership.
-In the absence of a partnership agreement, what happens to partnership property when a partner dies?

Accepted Answer

A)   The surviving partners receive the rights to the partnership property.
B)   The surviving partners and the surviving spouse receive the rights to the partnership property.
C)   The surviving partners and the deceased partner's heirs receive the rights to the partnership property.
D)   The surviving spouse takes the place of the deceased partner and shares equally in the rights to the partnership property.
E)   Without a partnership agreement, there is no effect on partnership property.F) A) and B)
G) C) and D)

Question 15

[Partnership Problems] Jamar, Kenya, and Tamika want to form a partnership to sell students resume preparation and employment search services. Jamar asks Kenya and Tamika if they should draw up some sort of agreement. Kenya replies that a written agreement is not legally required and that an oral agreement will set up a partnership. Upon the urging of Jamar and Tamika, however, Kenya agreed to a written document setting up the partnership, which they all signed. It was a simple agreement listing the partners and did not specifically address the right to management or allocation of profits and losses. Kenya has an opportunity to assist some students with resumes and does so without revealing her employment to the partnership; she keeps the payment she receives for herself. When Jamar and Tamika find out, Kenya replies that she was doing two-thirds of the partnership work, particularly in regard to management; that she, therefore, has two-thirds of the voting rights; and that she voted that her actions were appropriate. The articles of partnership does not address the right to share in management, but Jamar and Tamika strongly disagree with Kenya.
-Did Kenya commit any breach of duty to the partnership?

Accepted Answer

A)   Yes, she breached her fiduciary duty to the other partners.
B)   Yes, she breached her duty of integrity to the other parties.
C)   Yes, but only if the other partners can show that she made more income through doing the work on her own than she would have made if she had done the work through the partnership.
D)   No, but only because she held two-thirds of the voting rights and could approve the work herself.
E)   No, she did not breach any duty.F) None of the above
G) A) and E)

Question 16

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership.
-List and describe the three property rights held by partners including rights, if any, upon death.

Accepted Answer

Partners have three property rights: (1)...

Question 17

[Mortuary Blues] Jack and Bianca had a partnership running a mortuary. Bianca died, and after her death, Jack decided to shut down the mortuary. Jack incurred some expenses in closing the business affairs of the mortuary. He sought compensation for those expenses but Gus, the executor of Bianca's estate, objected. Gus also claimed that Jack had no rights in Bianca's share of the partnership property and that Gus, the executor, had the right to confiscate her share of the property and sell it at auction. Jack, however, took the position that all interests of Bianca passed to Jack and that Jack owed her estate nothing. The articles of partnership did not address death.
-Is Jack entitled to compensation for closing down the mortuary?

Accepted Answer

A)   No, he is not entitled to any compensation unless the articles of partnership specifically gave him that right.
B)   No, he is not entitled to any compensation, unless credible proof exists that Bianca acknowledged prior to her death that expenses in eventually closing down the business should be compensated.
C)   Yes, he is entitled to compensation for the work, but only if he can establish that all outstanding debts of the mortuary have been paid.
D)   Yes, he is entitled to compensation for the work, but only if the executor agreed that it needed to be done.
E)   Yes, he is entitled to compensation for the work.F) C) and E)
G) A) and E)

Question 18

No partnership is created based upon an employer sharing profits with an employee as payment for work.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true regarding the result of the dispute in the Case Opener involving whether a joint venture between law firms was liable for the actions of a partner sanctioned for litigation misconduct?

Accepted Answer

A)   That the law firms were not liable because on the basis of the independent management of the law firms involved, no joint venture actually existed.
B)   That while a joint venture existed, vicarious liability could not be asserted in order to hold members of a joint venture vicariously liable for a partner's misconduct.
C)   That a joint venture existed and that members could be held liable for a partner's misconduct while acting in the ordinary course of the joint venture's business.
D)   That because a joint venture is defined as a multiple-purpose partnership, the participants could be held liable, but only if the misconduct stemmed from activities engaged in on behalf of the joint venture.
E)   That because a joint venture is defined as a multiple-purpose LLC, the participants could not be held liable regardless of whether the misconduct stemmed from activities engaged in on behalf of the joint venture.F) B) and C)
G) A) and D)

Question 20

The partnership is not taxed as a legal entity, thus the partners are taxed on the income generated by the partnership.

Accepted Answer

A) True 
 B)False

Exam 36: Partnerships: Nature, Formation, and Operation

Which statement is correct regarding the liability of a partner for a mistake?

Correct Answer
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If the articles of partnership do not address the matter, which of the following is a true statement regarding the right of a partner to sell their interest in the partnership to a creditor?

Correct Answer
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A

Correct Answer
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Regarding partnership property rights, which of the following statements is false?

Correct Answer
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Correct Answer
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E

In regards to the rights of partners to share in profits, if the partnership agreement does not establish how the partnership will distribute profits,

Correct Answer
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Correct Answer
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________ is an association of two or more persons to carry on as co-owners of a business for profit.

Correct Answer
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Correct Answer
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Partnership by estoppel is not recognized by most states.

Correct Answer
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Each partner has unlimited personal liability for the obligation, if a partner has authority to act and the partnership is bound by the act giving rise to the obligation.

Correct Answer
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Which of the following statements is false regarding the implied authority of partners?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Partners have three property rights: (1)...
View Answer

Correct Answer
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No partnership is created based upon an employer sharing profits with an employee as payment for work.

Correct Answer
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Which of the following statements is true regarding the result of the dispute in the Case Opener involving whether a joint venture between law firms was liable for the actions of a partner sanctioned for litigation misconduct?

Correct Answer
verified

The partnership is not taxed as a legal entity, thus the partners are taxed on the income generated by the partnership.

Correct Answer
verified

Exam 36: Partnerships: Nature, Formation, and Operation

Which statement is correct regarding the liability of a partner for a mistake?

Correct AnswerverifiedShow Answer

If the articles of partnership do not address the matter, which of the following is a true statement regarding the right of a partner to sell their interest in the partnership to a creditor?

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

Regarding partnership property rights, which of the following statements is false?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

In regards to the rights of partners to share in profits, if the partnership agreement does not establish how the partnership will distribute profits,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

________ is an association of two or more persons to carry on as co-owners of a business for profit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Partnership by estoppel is not recognized by most states.

Correct AnswerverifiedShow Answer

Each partner has unlimited personal liability for the obligation, if a partner has authority to act and the partnership is bound by the act giving rise to the obligation.

Correct AnswerverifiedShow Answer

Which of the following statements is false regarding the implied authority of partners?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPartners have three property rights: (1)...View AnswerShow Answer

Correct AnswerverifiedShow Answer

No partnership is created based upon an employer sharing profits with an employee as payment for work.

Correct AnswerverifiedShow Answer

Which of the following statements is true regarding the result of the dispute in the Case Opener involving whether a joint venture between law firms was liable for the actions of a partner sanctioned for litigation misconduct?

Correct AnswerverifiedShow Answer

The partnership is not taxed as a legal entity, thus the partners are taxed on the income generated by the partnership.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Partners have three property rights: (1)...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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