42. A
partner.
is an unincorporated business association consisting of at least one general partner and at least one limited
a. joint venture
b. limited liability company
c. limited liability partnership
d. limited partnership
43. Under the RUPA, a loan from a partner to the partnership is treated the same as loans of a person not a partner,
subject to:
a. fraudulent transfer law.
b. the law of avoidable preferences under the Bankruptcy Act.
c. general debtor–creditor law.
d. All of these.
44. Juan, a partner in the Bell Partnership, in violation of a specific term in the partnership agreement restricting the
extension of credit of more than $5,000 without the written consent of all the partners, extends credit of $6,500 to
Brittany. Juan has violated the duty of:
a. obedience, and he can be held personally liable to his partners for any unpaid portion of the $6,500.
b. obedience, but he cannot be held personally liable for the unpaid portion of the debt.
c. care because he owed the partnership a duty to act in good faith.
d. loyalty, and he is therefore personally liable to the partnership for $6,500.
45. Which of the following is true of a partner’s fiduciary duty?
a. The RUPA’s provision regarding the fiduciary duty is not exclusive, but leaves further development of the
fiduciary duty of partners to the common law of agency.
b. The RUPA provides that a partner does not violate the duty of loyalty merely because the partner’s conduct
furthers the partner’s own interest.
c. The fiduciary duty extends to the formation of the partnership, even when the parties are negotiating at arm’s
length.
d. The duty not to compete continues for a reasonable time after dissociation.
46. Terry and Ernest agree to become partners in advertising and promoting the Midway Fair to be held three years
hence. If they agree orally, will the partnership agreement be enforceable?
a. Yes, since no writing is required
b. Yes, as long as a division of profits is achieved
c. No, because the venture cannot be performed within one year
d. No, due to arguments about terms
47. Sue, Barb, and Carlotta agree to put in $1,000 each to set up a shelter for lost animals. They each work two days a
week. Donations fund the day–to–day operations. Do they have a partnership?
a. Yes, since each has control of the operation
b. Yes, because they are all co-equals in ownership of the shelter
c. No, because they have made no formal agreement
d. No, because there is no business for profit
48. Marilyn, George, and Christine pool their money to buy land for a vegetable garden. They plan to sell the produce at
a roadside stand that summer. Are they partners?
a. Yes, since they co–own the land
b. No, because they each control the use of the land
c. Yes, because if there’s a loss in the land’s value, they will all share that loss
d. No, they are merely joint venturers
49. Which of the following is the correct definition for a partnership?
a. An association of two or more persons with one or more general partners and one or more limited partners
b. A legal entity ordinarily consisting of an association of numerous individuals
c. An association of two or more persons to carry on as co–tenants in business
d. An association of two or more persons to carry on as co-owners a business for profit
50. Absent an agreement otherwise, upon dissolution, a partner is entitled to which of the following after payment of
partnership creditors?
a. A share of profits in proportion to capital contribution
b. A share of profits based on the degree of participation in management
c. Under the UPA, repayment of his capital contribution during the winding up of the firm
d. The UPA requires that the partners have an agreement or else they must seek a court order distributing the
remaining assets
51. White, Gray, and Greene enter into a contract to form a partnership, but the contract says nothing about the sharing
of profits and losses. Which of the following will take place?
a. Profits and losses will be shared in a ratio based on the dollar amount of their capital investments.
b. Profits will be shared equally; losses will be absorbed based on dollar amount of capital investment.
c. Profits will be based on amount of time each partner spends working for the firm; losses will be shared
equally.
d. Profits and losses will be shared equally.
52. The UPA grants each partner the right to an account whenever:
a. his partners wrongfully exclude him from the partnership business.
b. a partner makes a profit in violation of his fiduciary duty.
c. circumstances render it just and reasonable.
d. All of these.
53. A distribution in a partnership may be:
a. a payment made to compensate a partner for services rendered to the partnership.
b. a division of profits.
c. repayment of a loan to a partner.
d. All of these.
54. Under the RUPA, a partner must manage the partnership affairs without
duty of care.
a. ordinary
b. culpable
c. gross
d. any
negligence to avoid violation of the
55. In deciding whether property owned by a partner before formation of the partnership and used in the business is a
capital contribution that belongs to the firm, a court will consider which of the following?
a. Whether the property was improved with partnership funds
b. Whether the property was carried on the books of the partnership as an asset
c. Admissions or declarations of the partners
d. All of these would be considered.
56. Which of the following expresses the right one has to choose her partners?
a. Partnership by estoppel
b. Delectus personae
c. Entity theory
d. Fiduciary relationship
57. Which of the following would be the most convincing evidence of a partnership?
a. An agreement to share in the management of a business
b. Agreements to share gross returns
c. An agreement to share losses
d. An agreement to pay a firm manager a percentage of the profits for his salary
58. General Widget partnership assets amount to $34,000 after liquidation. Frank, Gene, and Hank, equal partners, each
contributed $3,000 into the capital pool at the inception of the business. Gene later loaned the business $5,000. They
owe $23,000 to creditors for inventory. What will Gene get in distribution, assuming there is no agreement on the
distribution of profits?
a. $7,000
b. $5,000
c. $8,000
d. $11,000
59. The principal legal duties imposed upon partners in their relations with one another include:
a. the fiduciary duty or the duty of loyalty.
b. the duty to compensate other partners for their time and efforts spent on partnership business.
c. a duty to devote full time and expertise to the partnership.
d. All of these.
60. Clark and David are partners. Clark has contributed $25,000. David has contributed only his time and skill. On
dissolution, after all firm debts are paid, $20,000 in assets remains. Which of the following is NOT correct?
a. The $20,000 remaining after payment is profit that will be equally divided.
b. The partnership has sustained a loss of $5,000.
c. David is not entitled to any part of the $20,000.
d. David has no obligation to reimburse Clark for any loss.
61. The Oak Grove Partnership decided it would buy personal computers for use by each partner. Unknown to the other
partners, Cromwell, a partner, had an ownership interest in a computer store and thought he could get the computers
for the partnership at the best price because of his inside position. He did, in fact, obtain eight computers at only $150
above the manufacturer’s price, which was $250 less than the next lowest bid for each computer. What
consequence?
a. Because Cromwell did not tell his partners of his inside position with the computer store, there will be no sale.
b. Since Cromwell obtained the lowest price available, the deal will go through.
c. Cromwell will have to give his part of the sales profits to the partnership.
d. Cromwell will have to rescind the contract and go with the next highest bidder.
62. The Oak Grove Partnership decided it would buy personal computers for use by each partner. Cromwell, a partner,
had an ownership interest in a computer store. He thought he could get the computers for the partnership at the best
price because of his inside position, and he told his partners at Oak Grove about his position. He did obtain eight
computers for $150 over manufacturer’s price, which was $250 less per computer than the next lowest bid. What
consequence?
a. There was a sale, but no profit to the computer store.
b. There was a sale, but the computer store would only receive a percentage of the profit equal to Cromwell’s
ownership interest in the store and the partnership would receive the balance.
c. There was a sale, and the computer store would receive the profit of $150 per computer.
d. There would be no sale, because Cromwell had an interest in both businesses.
63. Drew, Elmer, and Frank are partners in the DEF partnership. The partnership is being dissolved. It has $200,000 in
cash assets and it owes $410,000 to creditors. Profits and losses of the partners are shared equally, although Drew
contributed $100,000 in capital; Elmer contributed $50,000 in capital; and Frank contributed $25,000 in capital. Which
of the following is correct with regard to the responsibility of each partner?
a. Each partner is responsible for $70,000 of the money owed to creditors.
b. Elmer will have to contribute additional capital in order to settle the partnership affairs.
c. Drew will have to contribute additional capital in order to settle the partnership affairs.
d. All of these are correct.
64. Answer the following:
a. Discuss the aggregate theory.
b. What is the entity theory?
c. Which approach is adopted by the RUPA? Explain your answer.
65. What is an assumed name statute? Why have many states adopted such statutes?
66. Anita is hired to manage an unincorporated dress boutique owned by Betty. The two agree that Anita will receive
one–third of the net profits, which amount is to be paid to her on a monthly basis.
a. Is Anita a partner? Explain.
b. If the boutique has a loss instead of a profit, would Anita have to share the loss? Explain.
67. Discuss the concept of “partnership property.“ What is the controlling factor in whether property belongs to the
partnership or to one or more of the partners individually?
68. Assume that you and your best friend have decided to form a partnership after graduation. You have both studied
business law, so you both know the importance of having a written partnership agreement. Summarize the clauses
that you would include in your partnership agreement.
69. Identify which forms of business organization provide the owners with limited liability for the business’s obligations
and which forms of organization allow the owners to participate in the management and control of the business.
70. Colleen, Joanna, and Ellen form Capital City Company, a partnership. Colleen contributes expertise; Joanna, $15,000;
and Ellen, $20,000. After a year, Joanna adds $12,000 as a loan. Ten years later, Capital owes $44,000 to creditors,
total assets are $112,000, and they decide to dissolve the business. How will these assets be distributed and what will
each receive?
71. Identify six factors affecting the choice of the most appropriate form of business enterprise. Name the nine forms of
business associations discussed in the chapter.
72. Identify six rights the law provides to partners.