ANSWER KEY
Chapter 25 The Business Entity: An Introduction
Opening Case Questions
1. Often the legislature will “grandfather” existing entities into a statute. The term
2. Joint liability means that, when the partners are sued, liability will be spread among them
3. The defendants (the partners in Washington Square Enterprises [WSE]) wanted to be judged
under the old law (the UPA) because under the UPA, joint liability applied, while under the new
law (the RUPA) joint and several liability applied. Joint liability helped the partners because, if
5. The trial court judge may not have wanted the problems associated with trying to join those
Self-Evident Questions
1. Answering this question properly requires a look at the five essential qualities of the capitalism
as stated by Sievers. They are (1) family-centeredness, (2) a willingness to take risks, (3) loyalty
to the capitalist ideal, (4) awe at the success of capitalistic ventures, and (5) a code of ethics that
permits the rules of contract and property law to work. A sole proprietorship clearly promotes
four of the five: taking risks, loyalty to capitalism, awe at success, and a code of ethics. A
2. According to Sievers, capitalism requires an integration of the aristocratic and the working class
elements of society. This type of integration is promoted by the partnership form of doing
3. In the Opening Case at the beginning of this chapter, a working class clerk managed to become
a member of the capitalistic aristocracy. A case like Robinson v. Kleinfield does not disprove
4. The alternate forms of partnership such as the limited partnership structure seem to prove
Sievers’ theory. Capitalism, Severs says, works best in an atmosphere of free thinking and
5. Recall that Schumpeter, like F. A. Hayek, opposes governmental interference in the economy.
This does not mean, however, that the sole proprietorship would be the perfect
Questions for Review and Discussion
1. The most common forms of business associations include the sole proprietorship, the general
partnership, the limited partnership, the limited liability partnership, the private corporation, the public
4. Under the entity theory, a partnership exists as an individual person with its own separate identity.
This unique, individual entity is separate from the identities of the partners. In contrast, under the
5. RUPA is quite specific about the nature of a partnership agreement. In fact, it defines such an
6. RUPA says that certain types of profit sharing, while real enough, will not rise to the level needed
to create a partnership. These profit-sharing activities include the following: (1) the repayment of a
debt; (2) wages to an employee; (3) payments to an independent contractor; (4) rent payments to a
8. Under UPA, the rule was that each partner had a property interest in all specific items of
partnership property. Each partner was, therefore, a co-owner of that property. This form of ownership
was known as tenancy in partnership. Under UPA, a tenancy in partnership had the following
characteristics:
a. A partner had an equal right with all other partners to possess and use specific partnership
property for partnership purposes, but not for that partner’s personal use.
b. A partner’s interest in partnership property could not be assigned (i.e., transferred by sale,
mortgage, pledge, or otherwise) to a nonpartner, unless the other partners agreed to the transfer.
c. A partner’s rights in partnership property was not subject to attachment (i.e., taking a person’s
property and bringing it into the custody of the law) for personal debts or claims against the partners
themselves.
9. Under RUPA, a dissociation takes place whenever a partner is no longer associated with the
running of the firm. Partners can leave a partnership firm whenever they want. A partner leaves a firm
wrongfully if he or she does not have the legal right to do so. The dissolution of a partnership occurs
Cases for Analysis
1. No. The payments that Yauger received were clearly rental payments for the lease of the loft in
2. No. Taylor will not succeed in her claim against Roberts and Hull. The share of profits she
received each month was a fixed rent installment paid to her according to the lease agreement she
3. The court decided that no partnership existed. The money that went from Stephen to Lois was in
the form of rent. The court concluded that “there is also no indication that the parties shared net profits.
Both the appellant and Linda testified that Stephen operated and maintained the farm, but also sold
4. Yes. Under a Nebraska state statute a partnership is an entity. Therefore, a plaintiff who wishes to
5. No. Sharing of profits is prima facie evidence of the existence of a partnership. There are,
6. Yes. The Idaho Supreme Court ruled that Summers was not entitled to reimbursement. The court
explained that the business was a two-person partnership, with each partner having an equal say.
Dooley made it clear that he opposed the decision to hire a third worker. The court explained that when
END CHAPTER TWENTY-FIVE