978-0538496902 Chapter 26

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STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—1ȱQUIZȱ

LegalȱConceptsȱ

Directions:ȱPlaceȱaȱTȱforȱTrueȱorȱanȱFȱforȱFalseȱinȱtheȱAnswersȱcolumnȱtoȱshowȱ

whetherȱeachȱofȱtheȱfollowingȱstatementsȱisȱtrueȱorȱfalse.ȱ

ȱȱȱAnswersȱ

ȱȱ1.ȱCorporationsȱareȱtheȱmostȱnumerousȱlegalȱformȱofȱbusinessȱȱ

organization.ȱ

ȱȱ1.ȱ_____ȱ

ȱȱ2.ȱAȱcorporationȱcanȱhaveȱaȱperpetualȱexistence.ȱȱȱ2.ȱ_____ȱ

ȱȱ3.ȱAȱpartnershipȱendsȱifȱoneȱpartnerȱwithdrawsȱorȱdies.ȱȱȱ3.ȱ_____ȱ

ȱȱ4.ȱAȱcorporationȱisȱanȱassociationȱofȱtwoȱorȱmoreȱpersonsȱtoȱcarryȱ

onȱaȱbusinessȱforȱprofit.ȱ

ȱȱ4.ȱ_____ȱ

ȱȱ5.ȱAȱpersonȱwhoȱinvestsȱinȱaȱcorporationȱrunsȱtheȱriskȱofȱlosingȱallȱ

ofȱhisȱorȱherȱpersonalȱworth.ȱ

ȱȱ5.ȱ_____ȱ

ȱȱ6.ȱTheȱsoleȱproprietorȱownsȱallȱtheȱassetsȱandȱhasȱfullȱpersonalȱ

liabilityȱforȱallȱtheȱdebtsȱofȱhisȱorȱherȱsoleȱproprietorship.ȱ

ȱȱ6.ȱ_____ȱ

ȱȱ7.ȱCorporationsȱusuallyȱhaveȱgreaterȱfinancialȱstrengthȱthanȱdoȱ

otherȱformsȱofȱbusinessȱorganizations.ȱ

ȱȱ7.ȱ_____ȱ

ȱȱ8.ȱTheȱownerȱofȱaȱsoleȱproprietorshipȱmustȱobtainȱaȱcharterȱfromȱ

theȱstate.ȱ

ȱȱ8.ȱ_____ȱ

ȱȱ9.ȱȱ UnderȱtheȱprovisionsȱofȱtheȱUPA,ȱifȱutilized,ȱgeneralȱpartnersȱ

willȱshareȱallȱprofitsȱandȱlossesȱequally.ȱȱȱ

ȱȱ9.ȱȱ_____ȱ

10.ȱTheȱprivatelyȱheldȱrealȱandȱpersonalȱpropertyȱasȱwellȱasȱtheȱ

businessȱpropertyȱofȱaȱsoleȱproprietorȱmayȱbeȱusedȱtoȱsatisfyȱ

theȱdebtsȱofȱherȱorȱhisȱbusiness.ȱ

10.ȱ_____ȱ

LegalȱApplicationsȱ

11.ȱBenjaminȱKressȱlovesȱtoȱcook.ȱHeȱhasȱcollectedȱaȱvarietyȱofȱcookbooksȱandȱcookȬ

ingȱutensilsȱinȱtheȱpastȱseveralȱyears.ȱHisȱfriendsȱthinkȱheȱshouldȱstartȱaȱcateringȱ

businessȱorȱaȱsmallȱrestaurant.ȱBenjaminȱlikesȱtheȱidea,ȱbutȱheȱdoesȱnotȱhaveȱtheȱ

necessaryȱcapitalȱforȱsuchȱaȱventure.ȱWhatȱadviceȱwouldȱyouȱgiveȱtoȱBenjamin?ȱ

12.ȱRoxanneȱandȱMiguelȱstartedȱaȱtaxȱpreparationȱandȱconsultationȱbusiness.ȱTheyȱ

rentedȱofficeȱspaceȱfromȱJosephineȱandȱhiredȱJanineȱasȱaȱpartȬtimeȱassistant.ȱAreȱ

Roxanne,ȱMiguel,ȱJosephine,ȱandȱJanineȱallȱpartnersȱinȱtheȱbusiness?ȱExplainȱ

yourȱanswer.ȱ

Chapter 26 Forms of Business Organization 6-1

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—1ȱPRACTICEȱACTIVITYȱ

Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱaȱpageȱifȱadditionalȱ

spaceȱisȱneededȱforȱanswers.ȱ

1.ȱBarbaraȱCampbellȱwasȱconvictedȱofȱpresentingȱfalseȱfinancialȱreportsȱconcerningȱ

theȱfinancialȱconditionȱofȱtheȱGreenfieldȱMinorȱLeague,ȱofȱwhichȱsheȱwasȱtheȱ

treasurer.ȱTheȱleagueȱwasȱaȱbaseballȱleagueȱforȱyoungȱboys.ȱTheȱstatuteȱunderȱ

eightȱyears.ȱAtȱtheȱcloseȱofȱtheȱtrial,ȱCampbellȱmovedȱforȱaȱfindingȱofȱnotȱguiltyȱ

onȱtheȱgroundsȱthatȱtheȱstateȱhadȱnotȱintroducedȱanyȱevidenceȱthatȱtheȱleagueȱ

wasȱaȱpartnership.ȱWillȱtheȱcourtȱgrantȱtheȱdismissal?ȱExplain.ȱ[Commonwealthȱv.ȱ

2.ȱFirstȱNationalȱBankȱandȱotherȱcorporationsȱbroughtȱsuitȱagainstȱtheȱMassachuȬ

settsȱattorneyȱgeneralȱseekingȱtoȱhaveȱtheȱcourtȱinvalidateȱaȱstate’sȱcriminalȱstaȬ

tute.ȱThisȱstatuteȱmadeȱitȱaȱcrimeȱforȱbanksȱandȱbusinessȱcorporationsȱtoȱspendȱ

moneyȱforȱpurposesȱofȱinfluencingȱorȱaffectingȱtheȱvoteȱonȱanyȱquestionȱsubmitȬ

state’sȱconstitutionȱtoȱauthorizeȱaȱpersonalȱincomeȱtax,ȱandȱtheȱattorneyȱgeneralȱ

declaredȱthatȱheȱwouldȱenforceȱtheȱstatuteȱagainstȱtheȱcorporations.ȱTheȱcorpoȬ

rationsȱargueȱthatȱthisȱinfringesȱuponȱtheirȱconstitutionalȱrightȱtoȱfreeȱspeech.ȱ

Canȱthisȱargumentȱbeȱeffectivelyȱmadeȱforȱaȱcorporation?ȱExplain.ȱ[FirstȱNationalȱ

6-2 Chapter 26 Forms of Business Organization

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—1ȱRETEACHȱ

Directions:ȱMakeȱaȱcopyȱofȱtheȱfollowingȱlistȱofȱbusinessȱcharacteristicsȱforȱeachȱstuȬ

dent.ȱAskȱtheȱstudentsȱtoȱidentifyȱtheȱformȱorȱformsȱofȱbusinessȱthatȱhaveȱeachȱcharȬ

acteristicȱbyȱusingȱanȱSȱforȱsoleȱproprietorship,ȱaȱPȱforȱgeneralȱpartnership,ȱorȱaȱCȱ

forȱcorporationȱafterȱeachȱdescription.ȱ

1.ȱOwnedȱbyȱoneȱpersonȱ

2.ȱDirector(s)ȱsetȱpolicyȱandȱappointȱofficersȱ

3.ȱModeratelyȱhardȱtoȱformȱ

4.ȱOwnerȱhasȱfullȱmanagerialȱcontrol.ȱ

5.ȱTerminatesȱuponȱowner’sȱdeathȱ

6.ȱEasiestȱbusinessȱtoȱformȱ

7.ȱMostȱdifficultȱbusinessȱtoȱformȱ

8.ȱExcellentȱabilityȱtoȱattractȱprofessionalȱmanagersȱ

9.ȱOwnerȱorȱownersȱhaveȱfullȱpersonalȱliabilityȱ

10.ȱMustȱbeȱcharteredȱbyȱanȱappropriateȱgovernmentalȱbodyȱtoȱexist.ȱ

11.ȱBusinessȱformȱthatȱdoesȱnotȱhaveȱtoȱendȱwithȱtheȱdeathȱofȱtheȱowner(s)ȱ

12.ȱMostȱnumerousȱformȱofȱbusinessȱ

13.ȱOwnersȱshareȱprofitsȱandȱlossesȱinȱwhateverȱproportionsȱtheyȱagreeȱuponȱ

14.ȱShareholdersȱhaveȱlimitedȱliabilityȱ

15.ȱNoȱlegalȱrequirementsȱforȱorganizingȱ

16.ȱBusinessȱisȱaȱseparateȱentityȱfromȱtheȱownersȱ

Chapter 26 Forms of Business Organization 6-3

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—1ȱENRICHMENTȱ

Inȱthisȱlesson,ȱyouȱlearnedȱthatȱthereȱareȱthreeȱmainȱformsȱofȱbusinessȱorganization:ȱ

theȱsoleȱproprietorship,ȱtheȱpartnership,ȱandȱtheȱcorporation.ȱTheȱsoleȱproprietorȬ

shipȱisȱownedȱbyȱoneȱpersonȱwhoȱhasȱcontrolȱoverȱtheȱbusiness,ȱkeepsȱallȱtheȱprofȬ

its,ȱandȱhasȱunlimitedȱpersonalȱresponsibilityȱforȱallȱdebtsȱandȱotherȱliabilities.ȱAȱ

partnershipȱisȱanȱassociationȱofȱtwoȱorȱmoreȱpersonsȱwhoȱcarryȱonȱaȱbusinessȱforȱ

profit.ȱTheȱpartnersȱshareȱallȱprofitsȱandȱlossesȱequallyȱunlessȱthey’veȱreachedȱaȱdifȬ

ferentȱdistributionȱagreement.ȱAȱcorporationȱisȱaȱlegalȱentityȱthatȱhasȱanȱexistenceȱ

distinctȱfromȱtheȱrealȱpersonsȱwhoȱorganize,ȱown,ȱandȱrunȱit.ȱItȱisȱtheȱcorporationȱ

thatȱmakesȱorȱlosesȱmoney.ȱFindȱfamilyȱmembers,ȱfriends,ȱorȱcommunityȱmembersȱ

whoȱownȱorȱrunȱeachȱofȱtheȱthreeȱtypesȱofȱbusinesses.ȱAskȱeachȱindividualȱwhyȱheȱ

orȱsheȱorganizedȱhisȱorȱherȱbusinessȱinȱtheȱformȱchosenȱandȱwhatȱsomeȱofȱtheȱrisksȱ

andȱbenefitsȱareȱtoȱthatȱparticularȱformȱofȱbusinessȱorganization.ȱIndicateȱtheirȱreȬ

sponsesȱnextȱtoȱeachȱbusinessȱorganizationȱlistedȱbelow.ȱ(Noteȱthatȱyouȱwillȱhaveȱ

additionalȱquestionsȱforȱyourȱpartnershipȱintervieweeȱinȱtheȱenrichmentȱactivitiesȱ

forȱtheȱnextȱtwoȱlessons.)ȱ

1.ȱSoleȱproprietorshipȱ

2.ȱPartnershipȱ

3.ȱCorporationȱ

6-4 Chapter 26 Forms of Business Organization

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—2ȱQUIZȱ

LegalȱConceptsȱ

Directions:ȱInȱtheȱAnswersȱcolumn,ȱwriteȱtheȱletterȱfromȱColumnȱ1ȱthatȱrepresentsȱ

heȱwordȱorȱphraseȱthatȱmatchesȱtheȱstatementȱinȱColumnȱ2.ȱt

ȱColumnȱ1ȱȱColumnȱ2ȱAnswersȱ

ȱȱ 1.ȱAȱpartnershipȱthatȱbuysȱandȱsellsȱgoodsȱȱ 1. _______ ȱ

andȱservicesȱcommerciallyȱ

ȱȱ 2.ȱAȱpartnershipȱinȱwhichȱtwoȱorȱmoreȱ2. _______ ȱ

personsȱorȱfirmsȱcombineȱtheirȱresourcesȱtoȱ

completeȱoneȱcomplexȱprojectȱ

ȱȱ 3.ȱAȱpartnerȱwhoȱmayȱbeȱknownȱtoȱtheȱȱ 3. _______ ȱ

publicȱasȱaȱpartnerȱbutȱtakesȱnoȱactiveȱpartȱ

inȱmanagementȱ

3.ȱAȱpartnerȱwhoȱ4.ȱAȱpartnerȱwhoȱisȱneitherȱknownȱtoȱtheȱpublicȱ4. _______ ȱ

asȱaȱpartnerȱnorȱactiveȱinȱmanagementȱ

ȱȱ 5.ȱAȱpartnershipȱthatȱprovidesȱprofessionalȱȱ 5. _______ ȱ

andȱnoncommercialȱassistanceȱ

ȱȱ 6.ȱAȱpartnershipȱthatȱhasȱatȱleastȱoneȱgeneralȱȱ 6. _______ ȱ

partnerȱwithȱunlimitedȱliabilityȱandȱatȱleastȱ

oneȱpartnerȱwithȱlimitedȱliabilityȱ

ȱȱ 7.ȱAȱpartnerȱwhoȱholdsȱhimȱorȱherselfȱoutȱasȱȱ 7. _______ ȱ

aȱpartnerȱbutȱisȱnotȱactuallyȱaȱpartnerȱ

ȱȱ 8.ȱAȱpartnershipȱthatȱisȱformedȱforȱaȱsingleȱȱ 8. _______ ȱ

transactionȱ

ȱȱ 9.ȱȱ Aȱpartnershipȱinȱwhichȱallȱpartnersȱ9. _______ ȱ

A.ȱlimitedȱȱ

ȱpartnershipȱ

B.ȱdormantȱpartnerȱ

C.ȱsecretȱpartnerȱ

D.ȱtradingȱȱ

ȱpartnershipȱ

E.ȱpartnershipȱatȱ

ȱwillȱ

F.ȱjointȱventureȱ

G.ȱnominalȱpartnerȱ

H.ȱnonȬtradingȱȱ

ȱpartnershipȱ

I.ȱwindingȬupȱȱ

ȱperiodȱ

J.ȱgeneralȱȱ

ȱpartnershipȱ

K.ȱsilentȱpartnerȱ

L.ȱspecialȱȱ

ȱpartnershipȱ

ȱȱ ȱassumeȱunlimitedȱpersonalȱliabilityȱforȱ

debtsȱofȱtheȱfirmȱ

ȱȱ 10.ȱAȱpartnershipȱinȱwhichȱaȱpartnerȱmayȱȱ 10. _______ ȱ

ȱȱ ȱnormallyȱwithdrawȱatȱanyȱtimeȱwithoutȱȱ ȱ

liabilityȱtoȱassociatesȱ

ȱȱ 11.ȱAȱtimeȱduringȱwhichȱallȱpartnershipȱ11. _______ ȱ

businessȱinȱprocessȱatȱtheȱtimeȱofȱdissoluȬ

tionȱisȱconcludedȱ

ȱȱ 12.ȱAȱpartnerȱwhoȱisȱnotȱknownȱtoȱtheȱpublicȱȱ 12. _______ ȱ

asȱaȱpartnerȱyetȱparticipatesȱinȱmanageȬ

mentȱ

Chapter 26 Forms of Business Organization 6-5

LegalȱApplicationȱ

13.ȱKelliȱandȱReneeȱareȱpartnersȱinȱaȱprosperousȱnailȱsalon.ȱKelliȱrecentlyȱlostȱherȱ

manicurist’sȱlicense,ȱbutȱsheȱwantsȱtoȱcontinueȱasȱaȱpartner.ȱReneeȱwantsȱtoȱterȬ

minateȱtheȱpartnership.ȱWhatȱshouldȱReneeȱdoȱinȱthisȱsituation?ȱ

6-6 Chapter 26 Forms of Business Organization

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—2ȱPRACTICEȱACTIVITYȱ

Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱaȱpageȱifȱadditionalȱ

spaceȱisȱneededȱforȱanswers.ȱ

1.ȱEdwardȱTravis,ȱDonaldȱSt.ȱJohn,ȱandȱothersȱpurchasedȱ6,444ȱacresȱofȱlandȱforȱ

investmentȱpurposes.ȱTheȱamountȱpaidȱwasȱ$33,000.ȱTheyȱagreedȱtoȱshareȱ

equallyȱtheȱcostȱofȱtheȱproperty,ȱtheȱexpenseȱofȱmaintenance,ȱandȱtheȱprofitsȱorȱ

partiesȱthatȱtheȱventureȱwasȱterminatedȱandȱofferedȱtoȱreturnȱtheirȱmoneyȱifȱheȱ

soldȱtheȱpropertyȱatȱaȱprofit.ȱHeȱthenȱsoldȱtheȱpropertyȱforȱ$100,000.ȱTheȱotherȱ

partiesȱfiledȱsuitȱagainstȱhimȱallegingȱthatȱtheyȱhadȱaȱpartnershipȱandȱthatȱheȱ

owedȱthemȱanȱaccounting.ȱDoesȱSt.ȱJohnȱhaveȱtoȱgiveȱthemȱanȱaccountingȱbasedȱ

onȱtheirȱpartnership?ȱExplain.ȱ[Travisȱv.ȱSt.ȱJohn,ȱ404ȱA.ȱ2dȱ885ȱ(Conn.ȱ1978)]ȱ

2.ȱAnnaȱReidȱformedȱaȱpartnershipȱwithȱHaleyȱandȱtwoȱotherȱmen.ȱTheyȱenteredȱ

intoȱaȱwrittenȱpartnershipȱagreementȱforȱtheȱpurposeȱofȱleasingȱforȱprofitȱcertainȱ

realȱproperty.ȱTheȱagreementȱprovidedȱthatȱifȱaȱpartnerȱdiedȱduringȱtheȱperiodȱ

underȱtheȱpartnershipȱagreement.ȱTheȱexecutorsȱcontendedȱthatȱtheȱpartnershipȱ

wasȱdissolvedȱbyȱReid’sȱletterȱand,ȱtherefore,ȱtheȱsurvivingȱpartnersȱhadȱnoȱ

rightȱtoȱpurchaseȱunderȱtheȱpartnershipȱagreement.ȱWhoȱisȱcorrect?ȱExplain.ȱ[GiȬ

rardȱBankȱv.ȱHaley,ȱ332ȱA.ȱ2dȱ443ȱ(Pa.ȱ1975)]ȱ

Chapter 26 Forms of Business Organization 6-7

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—2ȱRETEACHȱ

Directions:ȱMakeȱaȱbingoȱsheetȱforȱeachȱstudentȱwithȱfourȱrowsȱandȱfourȱcolumnsȱasȱ

shown.ȱWriteȱoneȱtermȱinȱeachȱspaceȱandȱleaveȱoneȱspaceȱopenȱforȱaȱfreeȱspace.ȱ

Makeȱtheȱpositioningȱofȱtheȱtermsȱdifferentȱonȱeachȱstudent’sȱsheet.ȱToȱsaveȱtime,ȱ

giveȱtheȱstudentsȱblankȱbingoȱsheetsȱandȱletȱthemȱwriteȱtheȱtermsȱinȱtheȱspaces.ȱAsȱ

eachȱdefinitionȱisȱread,ȱtheȱstudentsȱcoverȱtheȱappropriateȱterm.ȱIfȱaȱstudentȱcoversȱ

anȱincorrectȱterm,ȱheȱorȱsheȱmustȱremoveȱthatȱbingoȱchip.ȱTheȱgameȱcontinuesȱuntilȱ

aȱstudentȱcoversȱfourȱtermsȱinȱaȱhorizontal,ȱvertical,ȱorȱdiagonalȱrow.ȱ

dissolutionȱlimitedȱȱ

partnershipȱ

dormantȱpartnerȱlimitedȱpartnersȱ

secretȱpartnerȱwindingȬupȱȱ

periodȱ

tradingȱȱ

partnershipȱ

partnershipȱȱ

atȱwillȱ

jointȱventureȱnominalȱpartnerȱterminationȱnonȬtradingȱ

partnershipȱ

generalȱȱ

partnershipȱ

silentȱpartnerȱ[FreeȱSpace]ȱpartnershipȱ

agreementȱ

efinitionsȱtoȱreadȱtoȱstudentsȱinȱanyȱorder:ȱ

ȣȱ Theȱendingȱofȱaȱpartnershipȱ(termination)ȱ

sonsȱorȱfirmsȱcombineȱtheirȱresourcesȱtoȱ

completeȱoneȱcomplexȱprojectȱ(jointȱvenȬ

ture)ȱ

leastȱoneȱpartnerȱwithȱlimitedȱliability(limitedȱ

partnership)ȱ

ȣȱ AȱpartnershipȱinȱwhichȱaȱpartnerȱmayȱnorȬ

mallyȱwithdrawȱatȱanyȱtimeȱwithoutȱliabilityȱ

toȱtheȱotherȱpartnersȱ(partnershipȱatȱwill)ȱ

6-8 Chapter 26 Forms of Business Organization

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—2ȱENRICHMENTȱ

Thisȱlessonȱprovidedȱadditionalȱdetailsȱaboutȱtheȱvariousȱtypesȱofȱpartnershipsȱandȱ

partners.ȱPartnershipsȱmayȱbeȱclassifiedȱaccordingȱtoȱtheirȱpurposeȱandȱaccordingȱtoȱ

theȱextentȱofȱtheȱliabilityȱofȱtheȱpartners.ȱInterviewȱaȱfamilyȱmember,ȱfriend,ȱorȱ

communityȱmemberȱwhoȱisȱinvolvedȱinȱaȱbusinessȱpartnership.ȱ(Youȱmayȱwantȱtoȱ

speakȱwithȱtheȱsameȱpersonȱyouȱinterviewedȱforȱLessonȱ26–1.)ȱReviewȱtheȱtermiȬ

nologyȱinȱtheȱlessonȱandȱaskȱtheȱquestionsȱlistedȱbelow.ȱ

1.ȱHowȱmanyȱpartnersȱareȱinvolvedȱinȱthisȱbusiness?ȱ

2.ȱClassifiedȱbyȱpurpose,ȱisȱthisȱaȱtradingȱpartnershipȱ(buyingȱandȱsellingȱgoodsȱorȱ

servicesȱcommercially)ȱorȱaȱnonȬtradingȱpartnershipȱ(providingȱprofessionalȱandȱ

noncommercialȱassistance)?ȱ

3.ȱClassifiedȱbyȱextentȱofȱliability,ȱisȱthisȱpartnershipȱgeneralȱorȱlimited?ȱIfȱitȱisȱaȱ

limitedȱpartnership,ȱhowȱmanyȱofȱtheȱinvestorsȱareȱlimitedȱpartners?ȱ

4.ȱAreȱthereȱanyȱsilentȱpartners,ȱsecretȱpartners,ȱdormantȱpartners,ȱorȱnominalȱ

partnersȱinvolvedȱinȱthisȱpartnership?ȱIfȱso,ȱdescribeȱtheirȱinvolvement.ȱ

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—3ȱQUIZȱ

LegalȱConceptsȱ

Directions:ȱPlaceȱaȱYȱforȱYesȱorȱanȱNȱforȱNoȱinȱtheȱAnswersȱcolumnȱtoȱindicateȱtheȱ

correctȱanswer.ȱ

Answersȱ

1.ȱIsȱaȱgeneralȱpartnerȱpersonallyȱliableȱforȱtheȱlossȱcausedȱbyȱȱ

ȱanotherȱpartner’sȱerrorsȱinȱjudgment?ȱ1.ȱ______ ȱ

2.ȱDoesȱaȱpartnerȱhaveȱaȱfiduciaryȱdutyȱtoȱtheȱotherȱpartners?ȱ2.ȱ______ ȱ

3.ȱCanȱaȱpartnerȱretainȱanyȱprofitȱorȱbenefitȱwithoutȱinformingȱȱ 3.ȱ______ ȱ

theȱotherȱpartners?ȱ

4.ȱCanȱaȱpartnerȱwhoȱwithdrawsȱfromȱaȱpartnershipȱimmediatelyȱ4.ȱ______ ȱ

ȱbeginȱtoȱcompeteȱwithȱtheȱfirmȱunlessȱrestrictedȱbyȱtheȱpartnershipȱ

ȱagreement?ȱȱ

5.ȱDoȱallȱpartnersȱhaveȱtheȱrightȱtoȱinspectȱtheȱpartnershipȱbooksȱȱ 5.ȱ______ ȱ

atȱanyȱreasonableȱtimeȱunlessȱotherwiseȱagreed?ȱ

6.ȱUnderȱtheȱUPAȱdoȱpartnersȱthatȱcontributeȱmoreȱcapitalȱtoȱtheȱ6.ȱ______ ȱ

ȱbusinessȱhaveȱaȱrightȱtoȱcastȱmoreȱthanȱoneȱvote?ȱȱ

7.ȱIsȱaȱunanimousȱagreementȱamongȱallȱpartnersȱnecessaryȱtoȱmakeȱȱ 7.ȱ______ ȱ

anyȱchangeȱinȱtheȱwrittenȱpartnershipȱagreement?ȱ

8.ȱCanȱaȱpartnerȱwithȱaȱlargeȱamountȱofȱoutsideȱincomeȱeverȱtakeȱȱ 8.ȱ______ ȱ

allȱtheȱlossesȱofȱaȱpartnershipȱforȱtaxȱpurposes?ȱ

9.ȱDoȱpartnersȱinȱaȱnonȬtradingȱpartnershipȱusuallyȱhaveȱtheȱȱ 9.ȱ______ ȱ

powerȱtoȱborrowȱmoneyȱforȱpartnershipȱpurposes?ȱ

10.ȱAreȱULPAȱandȱRULPAȱstatutesȱthatȱgovernȱtheȱformationȱandȱȱ

ȱoperationȱofȱgeneralȱpartnerships?ȱ10.ȱ______ ȱ

LegalȱApplicationsȱ

11.ȱLeonardo,ȱKevin,ȱandȱLonnyȱoperateȱaȱsnowȱremovalȱbusinessȱduringȱtheȱwinȬ

terȱmonths.ȱLeonardoȱplowsȱsnowȱforȱtheirȱclients.ȱKevinȱclearsȱsnowȱfromȱsiȬ

dewalksȱandȱalsoȱdrivesȱtheȱcompany’sȱsaltȱtruck.ȱLonnyȱspendsȱfiveȱhoursȱaȱ

weekȱkeepingȱtheȱpartnership’sȱrecords.ȱWhoȱshouldȱreceiveȱtheȱlargestȱshareȱofȱ

profits?ȱExplainȱyourȱanswer.ȱ

12.ȱSupposeȱLeonardoȱinȱExerciseȱ11ȱkilledȱaȱpedestrianȱwhileȱheȱwasȱnegligentlyȱ

drivingȱtheȱcompany’sȱplowingȱtruck.ȱWouldȱtheȱfirmȱbeȱcriminallyȱorȱcivillyȱliȬ

able?ȱExplainȱyourȱanswer.ȱ

6-10 Chapter 26 Forms of Business Organization

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—3ȱPRACTICEȱACTIVITYȱ

Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱaȱpageȱifȱadditionalȱ

spaceȱisȱneededȱforȱanswers.ȱ

1.ȱCharlesȱWolfeȱandȱNickȱWolfeȱwereȱbrothersȱwhoȱformedȱaȱpartnershipȱandȱdidȱ

businessȱasȱWolfeȱConstructionȱCompany.ȱEastȱTexasȱSeedȱCompanyȱhadȱdoneȱ

UnknownȱtoȱEastȱTexasȱSeedȱCompany,ȱtheȱpartnershipȱhadȱbeenȱdissolvedȱbeȬ

foreȱtheȱtransactionȱandȱitȱwasȱonlyȱNickȱWolfeȱwhoȱorderedȱtheȱmerchandiseȱ

fromȱEastȱTexas.ȱWillȱCharlesȱbeȱliableȱforȱtheȱdebt?ȱExplain.ȱ[Wolfeȱv.ȱEastȱTexasȱ

2.ȱForȱseveralȱyears,ȱJohnȱDaleȱMaclayȱandȱhisȱwifeȱandȱchildrenȱhadȱbeenȱunderȱ

theȱmedicalȱcareȱofȱtheȱKelseyȬSeyboldȱClinic,ȱincludingȱtreatmentȱbyȱaȱpediatriȬ

claimedȱthatȱdespiteȱtheȱnotice,ȱtheȱdoctor’sȱrelationshipȱwithȱMaclay’sȱwifeȱ

continued.ȱMaclayȱbroughtȱsuitȱagainstȱDr.ȱBrewerȱandȱtheȱclinic,ȱallegingȱalienȬ

ationȱofȱaffection.ȱWillȱtheȱotherȱpartnersȱbeȱliableȱforȱBrewer’sȱacts?ȱExplain.ȱ

[KelseyȬSeyboldȱClinicȱv.ȱMaclay,ȱ466ȱS.W.ȱ2dȱ716ȱ(Texasȱ1971)]ȱ

Chapter 26 Forms of Business Organization 6-11

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—3ȱRETEACHȱ

Directions:ȱȱWriteȱtheȱanswersȱtoȱQuestionsȱ1–9ȱonȱtheȱblanksȱprovided.ȱTheȱanswerȱ

toȱQuestionȱ10ȱshouldȱappearȱinȱtheȱverticalȱboxes.ȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ10.ȱ

1.ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱ ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱȱ

2.ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ ȱ__ȱ__ȱ

3.ȱȱȱȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱȱ ȱ__ȱȱ__ȱ

4.ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱ__ȱ__ȱȱ__ȱȱ

5ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱ__ȱ__ȱ__ȱȱ__ȱ__ȱ__ȱȱ

6.ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱ__ȱȱ

7.ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱȱ__ȱ__ȱ__ȱ__ȱȱ

8.ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱ__ȱȱ__ȱ__ȱȱ

9.ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱ__ȱȱ__ȱ__ȱ__ȱȱ

ȱȱ1.ȱEachȱpartnerȱhasȱtheȱ_________ȱtoȱcarryȱonȱtheȱbusinessȱ

ȱȱ2.ȱPartnerȱthatȱisȱliableȱforȱbothȱexistingȱandȱnewȱdebtsȱ

ȱȱ3.ȱAȱpartnerȱwhoȱ_________ȱisȱstillȱliableȱforȱtheȱfirm’sȱdebtsȱ

ȱȱ4.ȱEachȱpartnerȱactsȱasȱa(n)ȱ_________ȱforȱtheȱfirmȱ

ȱȱ5.ȱPartyȱwhoȱdoesȱnotȱhaveȱtheȱrightȱtoȱmanageȱaȱpartnershipȱ

ȱȱ6.ȱAȱpartnerȱcannotȱusuallyȱconductȱaȱbusinessȱthatȱwouldȱȱ_________ȱȱwithȱtheȱ

partnershipȱ

ȱȱ7.ȱPartnersȱinȱtradingȱpartnershipsȱhaveȱtheȱpowerȱtoȱȱ_________ȱmoneyȱ

ȱȱ8.ȱPartnersȱusuallyȱhaveȱȱ_________ȱȱsharesȱinȱtheȱprofitsȱ

ȱȱ9.ȱPartnersȱusuallyȱshareȱprofitsȱandȱ__________ȱequallyȱ

10.ȱ__________ȱagreementȱofȱtheȱpartnersȱisȱrequiredȱbeforeȱaȱwrittenȱpartnershipȱ

agreementȱcanȱbeȱchangedȱ

6-12 Chapter 26 Forms of Business Organization

STUDENT _______________________________________ CLASS _______________________ DATE _________

ȱLESSONȱ26—3ȱENRICHMENTȱ

Asȱyouȱlearnedȱinȱthisȱlesson,ȱpartnersȱhaveȱspecificȱdutiesȱandȱrights.ȱAȱpartnerȬ

shipȱmayȱbeȱvaluableȱbecauseȱitȱcombinesȱtheȱcapital,ȱlabor,ȱskill,ȱandȱknowledgeȱofȱ

twoȱorȱmoreȱindividuals.ȱYet,ȱbecauseȱofȱtheȱcloseȱrelationshipȱandȱabilityȱtoȱbindȱ

eachȱotherȱlegallyȱinȱcontractsȱandȱtortsȱinvolvingȱthirdȱparties,ȱpartnersȱshouldȱbeȱ

selectedȱwithȱextremeȱcare.ȱLikewise,ȱeachȱpartnerȱshouldȱbeȱveryȱthoroughȱaboutȱ

performingȱhisȱorȱherȱdutiesȱasȱprescribedȱbyȱlawȱorȱbyȱagreement.ȱInterviewȱaȱfamȬ

ilyȱmember,ȱfriend,ȱorȱcommunityȱmemberȱwhoȱisȱinvolvedȱinȱaȱpartnership.ȱ(Youȱ

mayȱwantȱtoȱspeakȱwithȱtheȱsameȱpersonȱyouȱinterviewedȱforȱLessonȱ26–1ȱand/orȱ

26–2.)ȱAskȱtheȱpartnerȱtoȱprovideȱyouȱwithȱsomeȱexamplesȱofȱhowȱheȱorȱsheȱfulfillsȱ

eachȱspecificȱdutyȱasȱlistedȱbelowȱandȱwhyȱtheȱperformanceȱofȱthatȱdutyȱbyȱeachȱ

partnerȱisȱsoȱimportant.ȱ

2.ȱAȱdutyȱtoȱuseȱreasonableȱcareȱ

3.ȱAȱdutyȱtoȱactȱwithȱintegrityȱandȱgoodȱfaithȱ

4.ȱAȱdutyȱtoȱavoidȱconductingȱcompetingȱbusinessȱ

5.ȱAȱdutyȱtoȱkeepȱaccurateȱrecordsȱ

Chapter 26 Forms of Business Organization 6-13

STUDENT _______________________________________ CLASS _______________________ DATE _________

TESTȱ

CHAPTERȱ26

SECTION I—IDENTIFY LEGAL TERMS

Directions:ȱPlaceȱaȱTȱforȱTrueȱorȱanȱFȱforȱFalseȱinȱtheȱAnswersȱcolumnȱtoȱshowȱ

hetherȱeachȱofȱtheȱfollowingȱstatementsȱisȱtrueȱorȱfalse.ȱw

Answers

1.ȱThatȱtheȱownerȱhasȱunlimitedȱpersonalȱresponsibilityȱforȱallȱdebtsȱ

andȱforȱotherȱliabilitiesȱthatȱtheȱbusinessȱmayȱincurȱisȱaȱstatementȱ

thatȱisȱonlyȱtrueȱofȱaȱsoleȱproprietorship.ȱ

2.ȱAdequateȱpublicȱliabilityȱinsuranceȱcanȱmakeȱtheȱrisksȱofȱunlimitedȱ

liabilityȱtolerable.ȱ

3.ȱInȱaȱlimitedȱpartnershipȱeveryȱpartnerȱisȱliableȱonlyȱtoȱtheȱextentȱofȱ

theirȱinvestment.ȱ

4.ȱLimitedȱpartnersȱdoȱnotȱusuallyȱshareȱinȱtheȱmanagerialȱcontrolȱofȱ

theȱbusiness.ȱ

5.ȱAȱlimitedȱpartnerȱmayȱbeȱemployedȱasȱanȱindependentȱcontractorȱ

forȱtheȱlimitedȱpartnershipȱunderȱtheȱRevisedȱUniformȱLimitedȱ

PartnershipȱAct.ȱ

6.ȱInȱtenancyȱinȱpartnership,ȱeachȱpartnerȱisȱaȱcoȬownerȱofȱtheȱentireȱ

partnershipȱpropertyȱandȱisȱnotȱtheȱsoleȱownerȱofȱanyȱpartȱofȱit.ȱ

7.ȱEveryȱpartnerȱmustȱbeȱservedȱwithȱaȱcopyȱofȱtheȱsummonsȱwhenȬ

everȱaȱgeneralȱpartnershipȱisȱsued.ȱ

8.ȱAȱcreditorȱofȱaȱpartnerȱcanȱreachȱspecificȱpartnershipȱpropertyȱtoȱ

satisfyȱtheȱdebtȱowedȱtoȱhimȱorȱher.ȱ

9.ȱAȱspecialȱpartnershipȱisȱformedȱbyȱmembersȱofȱaȱgeneralȱpartnerȬ

shipȱtoȱundertakeȱaȱuniqueȱventureȱinȱtheȱsameȱareaȱofȱbusinessȱ.ȱ

ȱ1.ȱȱ ȱ

ȱȱ

ȱ3.ȱȱ ȱ

ȱ4.ȱȱ ȱ

ȱ5.ȱȱ ȱ

ȱ6.ȱȱ ȱ

ȱ7.ȱȱ ȱ

ȱ8.ȱȱ ȱ

ȱ9.ȱȱ ȱ

6-14 Chapter 26 Forms of Business Organization

SECTION II—THINK CRITICALLY ABOUT LEGAL CONCEPTS

Directions:ȱInȱtheȱAnswersȱcolumnȱatȱtheȱrightȱofȱeachȱstatement,ȱwriteȱtheȱletterȱthatȱ

representsȱtheȱword,ȱorȱgroupȱofȱwords,ȱthatȱcorrectlyȱcompletesȱtheȱstatement.ȱ

ȱȱ Answersȱ

10.ȱTheȱmostȱnumerousȱlegalȱformȱofȱbusinessȱorganizationsȱareȱ(a)ȱ

10._______ȱ

11.ȱIfȱtwoȱorȱmoreȱpersonsȱorȱfirmsȱassociateȱtogetherȱbyȱcombiningȱ

theirȱresourcesȱandȱskillsȱtoȱdoȱoneȱcomplexȱproject,ȱtheyȱcreateȱaȱ

(a)ȱjointȱpartnership,ȱ(b)ȱjointȱventure,ȱ(c)ȱlimitedȱpartnership,ȱ(d)ȱ

secretȱpartnershipȱ

11._______ȱ

12.ȱInȱaȱlimitedȱpartnershipȱ(a)ȱoneȱpartnerȱmustȱbeȱaȱgeneralȱpartȬ

nerȱwithȱunlimitedȱliability,ȱ(b)ȱlimitedȱpartnersȱcontributeȱcapiȬ

talȱandȱshareȱprofitsȱandȱlossesȱwithȱgeneralȱpartners,ȱ(c)ȱbothȱaȱ

andȱb,ȱ(d)ȱnoneȱofȱtheseȱ

12._______ȱ

13.ȱȱ Whichȱofȱtheȱfollowingȱholdȱthemselvesȱoutȱasȱpartnersȱorȱletȱ

othersȱdoȱso,ȱbutȱareȱnotȱactualȱpartners?ȱ(a)ȱdormantȱpartner,ȱ(b)ȱ

13._______ȱ

14.ȱȱ Aȱminorȱenteringȱintoȱaȱpartnershipȱagreementȱ(a)ȱretainsȱallȱtheȱ

rightsȱandȱprivilegesȱofȱaȱminor,ȱ(b)ȱcanȱonlyȱfunctionȱasȱaȱlimȬ

itedȱpartner,ȱ(c)ȱcannotȱpleadȱminorityȱasȱaȱdefenseȱifȱsued,ȱ(d)ȱ

mustȱbeȱableȱtoȱdriveȱ

14._______ȱ

15.ȱȱ Theȱnormalȱsequenceȱofȱstepsȱinȱendingȱaȱpartnershipȱisȱ(a)ȱ

bankruptcy,ȱliquidation,ȱdistribution,ȱ(b)ȱdissolution,ȱwindingȬ

upȱperiod,ȱtermination,ȱ(c)ȱtermination,ȱdissolution,ȱdistribution,ȱ

(d)ȱeitherȱaȱ(inȱaȱbankruptcyȱsituation)ȱorȱcȱ(inȱaȱnormalȱsituaȬ

tion)ȱ

15._______ȱ

16.ȱRule(s)ȱgoverningȱtheȱoperationȱofȱaȱpartnershipȱincludeȱ(a)ȱaȱ

unanimousȱagreementȱofȱallȱpartnersȱconcerningȱanyȱchangeȱinȱ

theȱwrittenȱpartnership,ȱ(b)ȱoneȱvoteȱforȱeachȱpartnerȱregardlessȱ

ofȱtheȱamountȱofȱcapitalȱcontributed,ȱ(c)ȱthatȱnoȱactionȱcanȱbeȱ

takenȱonȱaȱquestionȱinȱwhichȱanȱevenȱnumberȱofȱpartnersȱareȱ

equallyȱsplit,ȱ(d)ȱallȱofȱtheseȱ

16._______ȱ

17.ȱȱ AȱunanimousȱagreementȱunderȱtheȱUniformȱPartnershipȱActȱisȱ

requiredȱforȱdecisionsȱtoȱ(a)ȱassignȱpartnershipȱpropertyȱtoȱcrediȬ

tors,ȱ(b)ȱbuyȱinventoryȱorȱequipmentȱforȱtheȱfirmȱonȱcredit,ȱ(c)ȱ

hireȱorȱfireȱaȱpermanent,ȱfullȬtimeȱemployee,ȱ(d)ȱbuyȱinsuranceȱ

17._______ȱ

18.ȱAȱpartnerȱwhoȱinvestsȱmoreȱcapital,ȱbringsȱinȱmoreȱbusiness,ȱorȱ

worksȱlongerȱandȱharderȱthanȱhisȱorȱherȱassociatesȱisȱentitledȱ

to(a)ȱaȱlargerȱpercentageȱofȱtheȱbusiness,ȱ(b)ȱaȱlargerȱshareȱofȱtheȱ

profits,ȱ(c)ȱextraȱpay,ȱ(d)ȱnoȱextraȱcompensationȱunlessȱallȱpartȬ

nersȱagree.ȱ

18._______ȱ

Chapter 26 Forms of Business Organization

permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6-15

SECTION III—APPLY LEGAL PRACTICES

19.ȱSamanthaȱhasȱcomputerȱequipmentȱandȱaȱknowledgeȱofȱgraphicȱdesign,ȱwhileȱ

Oliviaȱhasȱnaturalȱartisticȱabilityȱincludingȱcreativeȱideasȱaboutȱcolorȱandȱdesignȱ

butȱnoȱcomputerȱtrainingȱorȱequipment.ȱWhichȱtypeȱofȱbusinessȱorganizationȱ

wouldȱbeȱbestȱforȱthem?ȱExplain.ȱ

6-16 Chapter 26 Forms of Business Organization

ANSWERS

Lessonȱ26—1ȱ

Quiz

11.ȱBenjaminȱshouldȱseekȱsomeoneȱinterestedȱinȱbecomingȱaȱlimitedȱpartnerȱinȱtheȱ

12.ȱRoxanneȱandȱMiguelȱareȱtheȱonlyȱtwoȱpartners.ȱJosephineȱandȱJanineȱdoȱnotȱ

Practice Activity

1.ȱYes,ȱtheȱcourtȱwillȱgrantȱtheȱdismissal.ȱTheȱcourtȱagreedȱwithȱCampbell.ȱTheȱ

stateȱarguedȱthatȱthereȱwasȱnoȱotherȱtermȱtheȱstatuteȱcouldȱhaveȱusedȱtoȱdeȬ

2.ȱYes,ȱthisȱargumentȱcanȱbeȱeffectivelyȱmadeȱforȱaȱcorporation.ȱTheȱU.S.ȱSupremeȱ

courtȱheldȱthatȱaȱcorporationȱhasȱaȱFirstȱAmendmentȱrightȱtoȱfreeȱspeech.ȱTheȱ

Reteach

Enrichment Activity

Lessonȱ26—2ȱ

Quiz

2.ȱFȱ

3.ȱKȱ

4.ȱBȱ

6.ȱAȱ

7.ȱGȱ

8.ȱLȱ

10.ȱEȱ

11.ȱIȱ

13.ȱReneeȱshouldȱpetitionȱaȱcourtȱtoȱorderȱdissolutionȱsinceȱKelliȱisȱnoȱlongerȱcapaȬ

Practice Activity

1.ȱNo,ȱSt.ȱJohnȱdidȱnotȱhaveȱtoȱgiveȱanȱaccounting.ȱTheȱcourtȱheldȱthatȱthereȱwasȱ

noȱindicationȱthatȱtheȱassociationȱwasȱestablishedȱtoȱcarryȱonȱaȱbusiness,ȱbutȱraȬ

6-18 Chapter 26 Forms of Business Organization

2.ȱTheȱexecutorsȱareȱcorrect.ȱTheȱcourtȱruledȱthatȱtheȱdissolutionȱdateȱwasȱFebruaryȱ

Reteach

Theȱteacherȱwillȱhaveȱtoȱdetermineȱifȱtheȱstudentsȱareȱansweringȱcorrectlyȱinȱtheȱ

Enrichment Activity

Lessonȱ26—3ȱ

Quiz

11.ȱTheȱthreeȱpartnersȱshouldȱshareȱallȱtheȱprofitsȱequallyȱregardlessȱofȱtheȱtimeȱ

12.ȱLeonardoȱwouldȱbeȱcriminallyȱliable.ȱAllȱthreeȱpartnersȱandȱtheȱpartnershipȱ

Practice Activity

1.ȱYes,ȱCharlesȱwillȱbeȱliableȱforȱtheȱdebt.ȱCharlesȱarguedȱthatȱheȱshouldȱnotȱbeȱliȬ

ableȱbecauseȱheȱwasȱnotȱaȱpartnerȱduringȱtheȱtransaction.ȱTheȱcourtȱheldȱthatȱ

2.ȱYes,ȱtheȱpartnersȱwillȱbeȱliable.ȱTheȱClinicȱowedȱaȱdutyȱtoȱtheȱfamiliesȱofȱitsȱpaȬ

tientsȱtoȱexerciseȱordinaryȱcareȱtoȱpreventȱaȱtortiousȱinterferenceȱwithȱfamilyȱreȬ

Chapter 26 Forms of Business Organization

6-19

theȱpartnership.ȱHere,ȱhowever,ȱDr.ȱBrewerȱwasȱactingȱsolelyȱforȱhisȱownȱbeneȬ

Reteach

Enrichment Activity

Answersȱwillȱvary.ȱ

ANSWERS TO TEST QUESTIONS

SECTIONȱIIIȱ

6-20 Chapter 26 Forms of Business Organization