Chapter 26: Forms of Business Organization
1. Unlimited personal responsibility for all debts and for other liabilities that the business may incur is only
possible in a sole proprietorship form of business.
2. In a limited partnership every partner is liable only to the extent of their investment.
3. Limited partners do not usually share in the managerial control of the business.
4. A limited partner may be employed as an independent contractor for the limited partnership under the
Revised Uniform Limited Partnership Act.
5. In tenancy in partnership, each partner is a co-owner of the entire partnership property and is not the sole
owner of any part of it.
6. When one partner is served with a summons and complaint against the firm, all the partners are deemed to
have received the notice, even if they are not informed.
7. A creditor of a member of a partnership can reach specific partnership property to satisfy the debt owed to
him or her.
8. The partnership and all partners are liable when any partner commits a tort while acting within the scope of
the firm’s business.
9. No partner can use partnership property for personal purposes unless all other partners consent.
10. Of the three principal forms, the simplest, most flexible, and easiest to start is the sole proprietorship.
11. The most often used form of business organizations is the
A. corporation.
B. non-trading partnership.
12. If two or more persons or firms associate together by combining their resources and skills to do one
complex project, they create a
C. limited partnership.
D. secret partnership.
13. In a limited partnership, a limited partner’s exposure to liability cannot exceed the amount of capital the
partner has invested in the business as long as
C. the limited partners share the profits and losses equally.
D. none of these.
14. Which of the following hold themselves out as partners or let others do so, but are not actual partners?
C. secret partner
D. silent partner
15. A minor entering into a partnership agreement
C. cannot plead minority as a defense if sued.
D. none of these.
16. The normal sequence of steps in ending a partnership is
C. termination, dissolution, distribution.
D. either a (in a bankruptcy situation) or c (in a normal situation).
17. Which of the following basic forms of business organization is looked upon as an artificial person by the
law?
A. sole proprietorship
B. partnership
18. Under the Uniform Partnership Act unanimous agreement is required for decisions to
A. assign partnership property to creditors.
B. confess judgment.
19. A partner who invests more capital, brings in more business, or works longer and harder than his or her
associates is entitled to
A. a larger percentage of the business.
B. a larger share of the profits.
20. Which of the following is not within the authority of a general partner acting within the scope of the
business?
A. make binding contracts deemed by that partner to be necessary or desirable
B. receive any payments to the firm
C. sole proprietorship
D. unlimited partnership
22. Which of the following statements regarding a limited partnership is not true?
C. One or more partners may have limited liability to the extent of their investment.
D. none of these
23. Some states do not recognize a(n) ____________________ as an entity separate from its owners.
C. corporation
D. joint venture
24. Which of the following statements regarding a corporation is not true?
C. It attracts superior workers because it offers more generous salaries.
D. All of the above statements are true.
25. Tess, Constance, and Jessica want to establish a partnership for their law firm whose expressed purpose is to
provide legal advice and legal representation. Each partner has agreed to assume full personal responsibility for
all debts and the management of the firm. The type of partnership they want to establish is a
C. limited partnership.
D. legal partnership.
26. The three principal forms of business organization are the ____________________, the partnership, and the
corporation.
27. The sole proprietor has ____________________ personal responsibility for all debts and for other liabilities
that the business may incur.
28. The statute that governs partnerships in most states is the ____________________.
UPA
29. A corporation can have ____________________ life.
30. The partnership agreement need not be in writing unless required by the Statute of
____________________.
31. A(n) ____________________ partnership buys and sells goods and services commercially.
32. A(n) ____________________ partnership provides professional and noncommercial assistance, such as
legal, medical, or accounting advice.
33. A(n) ____________________ partner may be known to the public as a partner but takes no active part in
management.
34. A(n) ____________________ partner is neither known to the public as a partner nor active in management.
35. A(n) ____________________ partner is not known to the public as a partner yet participates in
management.
36. In a limited partnership, at least ____________________ partner must be a general partner with unlimited
liability.
37. When any partner ceases to be associated in the ordinary operation of the business, ____________________
of the partnership occurs.
38. In the absence of contrary agreement, both profits and losses are shared ____________________ regardless
of different amounts of capital contributed or time spent working in the partnership’s interests.
39. The property of the partnership is held in a special form of co-ownership called ____________________.
40. A(n) _________________ partnership is formed by some or all members of a general partnership to
undertake a unique venture in the same area of business as the general partnership.
41. Samantha has computer equipment and a knowledge of graphic design, while Olivia has natural artistic
ability including creative ideas about color and design but no computer training or equipment. Which type of
business organization would be best for them? Explain.
A partnership would most likely suit their needs. It allows both of them to employ their knowledge and insight
42. Paul, Betty, Julio, and Barney decided to form a partnership in which Paul and Betty each contributed
$50,000, Barney contributed $70,000, and Julio contributed $40,000. The four entered into a formal partnership
agreement for the establishment of a creative production business to provide scenery, backdrops, music, and
lighting for theater productions throughout their city. Each partner was to participate equally in the management
of the partnership. Six months later, however, partners were quibbling over details as to who had the right to tell
the other what s/he could purchase or contract for the greater good of the production business. Paul calls the
partners together because he would like to change the focus of their principal activities to dance choreography.
Their partnership agreement provided that differences of opinion would be resolved by a vote amongst the
partners. Partnership voting often ends in a deadlocked situation. Barney feels as if he should have more than
one vote because he contributed significantly more money and, thereby, could break the deadlocked situation.
How can the partnership resolve its deadlocked situation? How can it effectively change the purpose for which
the partnership was created?
Answers may vary. Unanimous agreement is required to make any change in the written partnership agreement,