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Interactive Quiz for ALT-12e, Chapter 37

Chapter 37 – Partnerships and Limited Liability Partnerships

1. In disputes over whether a partnership exists, which of the following IS NOT considered to be an essential element?

a. An equal right in the management of the business.

b. The sharing of profits or losses.

c. The consultation on business strategy.

d. Joint ownership in the business.

Answers:

a. Incorrect. This is considered to be an essential element of a partnership.

b. Incorrect. Partners share profits and losses, so this would be an essential element.

c. Correct. People other than partners often are consulted on business strategy, so this is not an essential element.

d. Incorrect. This would be an essential element of a partnership.

2. Partnerships may be classified as general or limited and also as:

a. an aggregate or an entity.

b. personal or impersonal.

c. service or nonservice.

d. executory or executed.

Answers:

a. Correct. Partnerships may be classified as an aggregate of individuals or as a single entity.

b. Incorrect. Partnerships are not classified as personal or impersonal.

c. Incorrect. Partnerships may provide services but they are not classified as service or nonservice partnerships.

d. Incorrect. Partnerships are not classified as executory or executed.

3. When assets are marshaled, what property is used first to satisfy partnership debts?

a. The individual property of partners.

b. The property of partners and their families.

c. Partnership property.

d. Stocks owned by the partners individually.

Answers:

a. Incorrect. The partnership property is used first to satisfy partnership debts.

b. Incorrect. The property of the partnership is used first.

c. Correct. Partnership property is used first to satisfy partnership debts, then the property of individual partners may be used.

d. Incorrect. This is not used first.

4. Assume that Kyle and Larsen have a general partnership. In this case, what rights does each have regarding the management of the dog biscuit business?

a. One partner must be the superior in rights.

b. They have equal management rights.

c. One partner must conduct the partnership business, while the other provides the capital.

d. The partner who put in more money has a bigger voice in management.

Answers:

a. Incorrect. The partners have equal rights in management.

b. Correct. Even though one partner may have contributed more money to the partnership than the other, Larsen and Kyle have equal management rights.

c. Incorrect. This is not the rule.

d. Incorrect. Kyle and Larsen have equal management rights.

5. The first stage in the termination of a partnership is known as:

a. incorporation.

b. dissolution.

c. invidiation.

d. a charging order.

Answers:

a. Incorrect. The stage is not known as incorporation.

b. Correct. The stage is known as dissolution.

c. Incorrect. There is no such thing as invidiation.

d. Incorrect. A charging order is not the first stage in the termination of a partnership.

6. If Frank, a dentist who is a member of a limited liability partnership (LLP), negligently harms Kathy while attempting to complete a root canal, what is the liability of the other members of the LLP?

a. If Frank was negligent, they are also liable.

b. None of them will be liable.

c. They will be liable only if Frank intended to harm Kathy.

d. Only the supervising partner will be liable, if there is a supervising partner.

Answers:

a. Incorrect. The partners, with the possible exception of a supervising partner, are not liable.

b. Incorrect. If there is a supervising partner, he or she may be liable also.

c. Incorrect. Even if Frank intended to harm Kathy, the other partners will not be liable.

d. Correct. If there is a partner who supervised Frank while he committed this tort, that partner will also be liable, along with Frank.

7. Jessica and her sister own a small farm producing organic fruits and organic fruit juices. If they want to do business as partners, which form of partnership would be most appropriate for them to use?

a. A family limited liability partnership.

b. A limited partnership.

c. A corporate partnership.

d. A limited liability sole proprietorship.

Answers:

a. Correct. This is a limited liability partnership in which the majority of partners are related to each other. This would be most appropriate for Jessica and her sister.

b. Incorrect. A limited partnership, which involves one general and at least one limited partner, would be less appropriate in this case.

c. Incorrect. There is no such thing as a corporate partnership.

d. Incorrect. There is no such thing as a limited liability sole proprietorship.

8. The owners of a limited partnership are legally known as:

a. general and limited partners.

b. members.

c. accreditors.

d. sole proprietors.

Answers:

a. Correct. Each limited partnership must have at least one general partner and one limited partner.

b. Incorrect. Owners of limited partnerships are referred to legally as partners, not members.

c. Incorrect. The owners of limited partnerships are not known as accreditors.

d. Incorrect. The owners of limited partnerships are not known as sole proprietors, but as partners.

9. In order for a limited partnership to be legally valid, it must:

a. file articles of organization.

b. file a certificate of limited partnership.

c. file amended articles of partnership.

d. have at least one general, and one limited partner; that’s all.

Answers:

a. Incorrect. This is what an LLC files.

b. Correct. The limited partnership must file this document, which is similar to a corporate charter, with a designated state official.

c. Incorrect. The limited partnership must file a certificate of limited partnership.

d. Incorrect. A limited partnership also needs to file documents with the state.

10. Generally speaking, a limited partnership may be dissolved by which of the following events or occurrences?

a. By the filing of a certificate of limited partnership.

b. By a relocation of the partnership.

c. By the marriage of a limited partner.

d. By the bankruptcy of a general partner.

Answers:

a. Incorrect. A limited partnership is formed, not dissolved, by filing a certificate of limited partnership.

b. Incorrect. Relocation will not work to dissolve the partnership, generally speaking.

c. Incorrect. The marriage of a limited partner will not dissolve a partnership.

d. Correct. Bankruptcy of a general partner will dissolve the partnership.

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