Ch38 Operation Of Partnerships And Verified Test Bank

Business Law, 17e (Langvardt)

Chapter 38 Operation of Partnerships and Related Forms

1) A partner may personally profit from a partnership transaction when he or she deals in good faith with the partnership.

2) A partner may not compete against the partnership unless he or she obtains consent from the other partners.

3) Silent partners have the duty to serve and bear the same liability for partnership debts as any other partner.

4) Under the Revised Uniform Partnership Act partners owe each other loyalty.

5) Partners have a right to be indemnified for expenditures they make for the partnership from their personal funds.

6) A partner is under no duty to maintain the secrets of the business.

7) In all partnerships, profits are shared according to the amount of capital contributed by each of the partners.

8) In a partnership, each partner has limited personal liability to partnership creditors.

9) A partner's express and implied authority constitutes his or her apparent authority.

10) A partnership does not have the authority to ratify the unauthorized act of partners.

11) A partner of a trading partnership ordinarily has implied authority to borrow money for the partnership.

12) Any notice given to a partner is deemed to be a notice given to the partnership firm.

13) When partners disagree concerning an action to be taken in the ordinary course of business, the disagreement will be resolved only if all the partners agree.

14) A partnership will be bound by the legal admissions or representations of its partners.

15) In a partnership, some classes of partners may have greater voting rights than others.

16) Partners of a partnership cannot turn over sole authority to one partner to run the business.

17) The standards and principles of agency law's respondeat superior are applied in determining the liability of the partnership and of the other partners for the torts of a partner and other partnership employees.

18) A partnership and its partners are usually liable for a partner's intentional torts.

19) In a partnership agreement, partners are not criminally liable when a partner commits a crime in the course and scope of transacting partnership business, even if they knew of the partner's criminal tendencies and placed him or her in a position in which he or she could commit a crime.

20) LLP partners are personally liable for contractual obligations and may be sued.

21) Lara is a partner at Matador Services, a management consulting firm. She makes an agreement with Regal InfoTech whereby Matador will provide management consulting services for $75,000 to Regal, on the condition that Regal pays her $5,000 personally. Which of the following is true of this situation?

A) Lara has placed her own interests above those of the partnership.

B) Lara has exceeded her actual authority.

C) Lara is competing against her partnership.

D) Lara has not exercised her duty to serve.

22) In a partnership, when a partner makes a secret profit through a business transaction, what is the remedy for such a breach?

A) Paying the other partners additional compensation

B) Hiring another individual to carry out the duties of the partner

C) Recovering the profits of the partner's competing venture

D) Returning the profit made in the transaction

23) In a partnership, partners may not compete against their own partnership unless:

A) they do not monetarily benefit from their competing venture.

B) they have been granted the apparent authority to do so.

C) they obtain consent from other partners.

D) they play the role of silent partners.

24) The ________ requires partners to undertake their share of responsibility for running the day-to-day operations of the partnership business.

A) duty to act within actual authority

B) duty to serve

C) duty of care

D) duty to account

25) Morgan is a silent partner at Mathers & Sons, a general partnership. Because he is only a silent partner, he does not have:

A) the duty to contribute capital to the firm.

B) the duty to serve in the day-to-day operations of the firm.

C) the same liability for partnership debts as other partners.

D) the duty to act within actual authority.

26) A partner of a partnership firm should make every effort to make decisions that are in the best interest of the firm. This is related to the concept of ________.

A) duty to serve

B) duty to act within actual authority

C) duty of care

D) duty to account

27) Partners are not liable to their partnership for losses resulting from:

A) gross negligence.

B) reckless conduct.

C) intentional violation of the law.

D) honest errors in judgment.

28) A partner of a firm that leases residential property to college students allows his daughter to live in a partnership-owned apartment. Based on this situation, this partner:

A) has a duty to relinquish his management rights for misusing partnership property.

B) has a duty to account for the use of partnership property.

C) has a duty to return the personal profits secured through this transaction.

D) has a right to be indemnified for payments made from his personal funds.

29) A partner uses her own truck to pick up some partnership supplies, which she pays for with her personal check. This partner has the right to be ________ for payments made from her personal funds.

A) indemnified

B) investigated

C) adjudicated

D) indentured

30) Tim is a partner at Starland Properties and gives one of Starland's customer lists to Sun Realty, the firm's leading competitor. In this situation, Tim has violated:

A) the duty to act with apparent authority.

B) the duty to indemnify partners.

C) the duty to account.

D) the duty to maintain confidentiality of partnership information.

31) Jim and Sarah establish a partnership business. Sarah ends up doing all the work related to the business even though they had agreed to split the labor. Jim may be in breach of his duty to what?

A) Duty to Serve

B) Duty to Have No Adverse Interest

C) Duty of Care

D) Duty to Make Profit

32) Under what condition may a partner compete against the partnership business?

A) If the business is in the IT field

B) If all the partners have consented to the partner's activities

C) If the business is in a high demand field

D) If the partner pays a royalty to the partnership business

33) According to the RUPA, a partner:

A) is entitled to a salary or wages.

B) is entitled to compensation based upon his capital contribution.

C) is entitled to an equal share of the profits.

D) is entitled to compensation based on the amount of time he contributes to the business.

34) Gary and Felix are partners of a general partnership. Gary does two-thirds of the partnership work, while Felix does one-third of the work. Last year the partnership earned $300,000 in profits. Under the RUPA, how much of the $300,000 is Felix entitled to receive?

A) $200,000

B) $150,000

C) $100,000

D) $250,000

35) Mark and Bonnie are partners. Mark contributed $30,000 of capital to the partnership and Bonnie contributed $15,000. Mark does 70 percent of the partnership's work, while Bonnie does 30 percent. They agree that Mark will assume 60 percent of partnership losses and Bonnie 40 percent. They have not decided how to share profits. The partnership earns a profit of $90,000. What is Bonnie's share of the profits?

A) $45,000

B) $30,000

C) $27,000

D) $36,000

36) Gillie, Taft, and Dall are partners of an architectural firm. The partnership agreement is silent about the payment of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half-time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50 percent of the business, and Gillie and Taft 25 percent each. How should profits of $120,000 for the year be divided?

A) Gillie $60,000, Taft $30,000, Dall $30,000

B) Gillie $40,000, Taft, $40,000, Dall $40,000

C) Gillie $30,000, Taft $60,000, Dall $30,000

D) Gillie $30,000, Taft $30,000, Dall $60,000

37) Helen and Casey are partners. Helen contributes capital of $20,000 to the partnership and Casey contributes $10,000. They agree that Helen will receive 60 percent of all profits and that Casey will receive 40 percent. They have not decided how to share losses. The partnership makes a loss of $7,000. What is Helen's share of the loss?

A) $2,800

B) $4,200

C) $3,500

D) $5,500

38) Helen and Casey are partners. Helen contributes capital of $20,000 to the partnership and Casey contributes $10,000. They agree that Helen will receive 60 percent of all profits and that Casey will receive 40 percent. They have not decided how to share losses. The partnership makes a loss of $7,000. What is Casey's share of the loss?

A) $2,800

B) $4,200

C) $3,500

D) $5,500

39) In the absence of a specific provision in a general partnership agreement, partnership losses will be allocated:

A) equally among the partners irrespective of the allocation of partnership profits.

B) in the same proportion that profits are shared.

C) in proportion to the partners' capital contributions.

D) in proportion to the partners' capital contributions and outstanding loan balances.

40) Which of the following is true about implied authority?

A) It is the sole determinant of a partner's actual authority.

B) It is determined with reference to what is usual business for partnerships of the same general type.

C) It exists because it reasonably appears to a third party that a partner has authority to do an act.

D) It may contradict a partner's express authority.

41) Express authority:

A) is created by agreement of partners.

B) is based on what is usual business for partnerships of the same general type.

C) is the sole determinant of a partner's actual authority.

D) is established only in writing.

42) In a partnership, partners may give everyone notice of limitation on a partner's authority by filing a(n) ________ with the secretary of state.

A) special resolution

B) Article of Organization

C) memorandum of association

D) Statement of Denial

43) Together, express and implied authority constitute ________.

A) fixed authority

B) actual authority

C) apparent authority

D) traditional authority

44) ________ authority exists because it seems reasonable to a third party that a partner has authority to do an act.

A) Fixed

B) Express

C) Apparent

D) Actual

45) The apparent authority of a partner to bind the partnership in dealing with third parties:

A) would permit a partner to submit a claim against the partnership to arbitration.

B) must be derived from the express powers and purposes contained in the partnership agreement.

C) will be effectively limited by a formal resolution of the partners of which third parties are aware.

D) will be effectively limited by a formal resolution of the partners of which third parties are unaware.

46) ________ occur(s) when partners accept an act of a partner who had no actual or apparent authority to do the act when it was done.

A) Arbitration

B) Defamation

C) Indemnification

D) Ratification

47) Vernon and Josh are partners of an accounting firm. They agree that only Josh has authority to make contracts to perform audits of clients, an agreement known by Mantron Company. Nonetheless, Vernon and Mantron contract for the partnership to audit Mantron's financial statements. Vernon takes the contract to Josh, who reads it and says, "OK, we can perform the audit." In this situation, Josh has ________ the contract.

A) nullified

B) modified

C) ratified

D) transferred

48) Don is a partner of the firm Shaw Associates, which offers recruitment services. Don entered into a contract with Bradman & Sons to sell the land on which the partnership business is situated for $85,000. Is this contract enforceable?

A) Yes, because Don has apparent authority to enter into contract with Bradman & Sons.

B) No, because Don has only express authority not actual authority.

C) Yes, because Don, being a partner, has implied authority to enter into contract.

D) No, because Don does not have the power to convey the partnership's real property.

49) A trading partnership:

A) borrows money to avoid cash flow problems.

B) engages in providing services.

C) has no substantial inventory.

D) buys but does not sell merchandise.

50) Which of the following is true about a nontrading partnership?

A) Its regular business is buying and selling merchandise.

B) It has no normal borrowing needs.

C) It borrows money to avoid cash flow problems.

D) It has an inventory.

51) Which of the following partnerships can be classified as a nontrading partnership engaged in providing services?

A) Dairy farming

B) General contracting

C) Real estate brokerage

D) Manufacturing

52) Which of the following is NOT true about the management powers of partners?

A) A partner whose name is not on the signature card filed with the bank does not have apparent authority to issue checks.

B) A partner's knowledge of material information relating to partnership affairs is imputed to the partnership.

C) A partner has implied and apparent authority to indorse and cash checks drawn payable to the order of the partnership.

D) A partner who has the authority to borrow money also has authority to issue negotiable instruments.

53) Stella, Bob, and Chris are the partners of Sole Services, a general partnership that runs a small shoe store. Stella and Bob want to buy the building that they are currently renting, but Chris does not agree. How will this disagreement be resolved?

A) Sole Services will buy the building because this management decision can be made by a majority vote of the partners.

B) Sole Services will buy the building because one partner can never stand in the way of the will of the majority of partners.

C) Sole Services will not buy the building because this decision requires a unanimous vote of the partners.

D) Sole Services will not buy the building because all partnership management decisions require a unanimous vote of the partners.

54) Which of the following decisions must be approved by all the partners of a partnership business that provides accounting and auditing services?

A) Buying paper supplies for the partnership.

B) Making a contract to provide audit services.

C) Borrowing money to repay a partnership debt.

D) Hiring a secretary.

55) Which of the following is true about partnership agreements?

A) The removal or delegation of a partner's management power eliminates that partner's apparent authority.

B) A partnership agreement may create classes of partners, some of whom may have greater voting rights.

C) In large partnerships, decisions such as hiring employees and making contracts require the unanimous agreement of all partners.

D) Unequal voting rights are often found in small partnerships.

56) How many partners must agree to modify a partnership agreement?

A) All partners must unanimously agree.

B) A majority must agree to the change.

C) More than one but not necessarily a majority.

D) Only one partner is needed to modify an agreement.

57) What document gives authority to a managing partner to run the business?

A) Articles of Organization

B) Management Articles

C) Articles of Incorporation

D) International Articles of Trade

58) Which of the following is applied in determining the liability of a partnership and of the other partners for the torts of a partner and other partnership employees?

A) Respondeat superior

B) De facto

C) Habeas corpus

D) Juris privati

59) A partnership's liability for the torts of a partner committed within the ordinary course of partnership business or within the authority of that partner is:

A) joint and several.

B) joint or several, at the option of the tort creditor.

C) joint only.

D) several only.

60) Lloyd is a partner of an ordinary partnership firm in the business of providing tax services. While serving a client on behalf of the partnership, Lloyd's partner Janet intentionally understates the client's taxable income on a federal tax return. When the true income is reported a few years later, the client is required to pay a penalty. The client sues the partnership and its partners. Which of the following is correct?

A) Janet is not liable to the client because she was acting on behalf of the partnership.

B) Lloyd is not liable to the client, unless he authorized Janet to understate the client's income.

C) The partnership is not liable to the client because the intentional tort is outside the scope of business.

D) Janet is not liable to the client because she was acting in the ordinary course of business.

61) Under which of the following circumstances will Rita be held liable for the crime of her partner?

A) The partner's criminal tendencies were unknown to Rita.

B) The partner's crime was outside the scope of the partnership's business.

C) The state's criminal code does not view partnerships as legal entities.

D) The partner's crime was authorized by Rita.

62) Stella, Bob, and Chris are the partners of Sole Services, a general partnership that operates a shoe store. One day Stella's ex-husband Dan comes into the store to buy shoes. Stella is still angry over the divorce. While Dan's back is turned to Stella, she stabs him with a knife, inflicting serious injuries. Dan wants to sue Stella, the partnership, and each partner. Who could be required to pay for Dan's injuries?

A) Stella only

B) Stella and the partnership only

C) Stella and each partner

D) Stella, the partnership, and each partner

63) Kate is a partner of a limited liability partnership (LLP) that provides accounting services. Acting within her authority, Allie, who is one of Kate's subordinates, negligently provides accounting services to a client. The client sues the LLP and its partners. Which of the following is incorrect?

A) The LLP is liable to the client.

B) Allie is liable to the client, and the judgment may be satisfied out of her personal assets.

C) Kate is not personally liable for Allie's negligence.

D) Kate is personally liable to the client, and the judgment may be satisfied out of her partner's personal assets.

64) Sharon and Martha are general partners of the SM general partnership. Sharon, acting with authority, negotiated and signed for a $500,000 loan to SM from a bank. SM has not repaid this loan. The bank can recover its loan from:

A) Sharon only.

B) SM and Sharon; they are jointly liable only.

C) SM, Sharon, and Martha; they are jointly liable only.

D) SM, Sharon, and Martha; they are jointly and severally liable.

65) What form of partnership prevents the partners from being personally liable for the contractual obligations of the business?

A) LLP

B) Incorporation

C) International Partnership

D) Domestic Partnership

66) Which of the following is not a requirement for a partner to personally profit from partnership transactions?

A) She must deal in good faith.

B) She must make a full disclosure of all material facts affecting the transaction.

C) She must disclose all facts to her knowledge regarding the transaction.

D) She must obtain approval from her partners.

67) When a partner competes against his partnership without consent, what is the remedy for such a breach?

A) Paying the other partners additional compensation

B) Hiring another individual to carry out the duties of the partner

C) Returning the profit made in the transaction

D) Recovering the profits of the partner's competing venture

68) A partnership agreement of a large auditing firm states that no partner shall provide auditing services except on behalf of the partnership. Violation of this clause is an example of:

A) a breach of a partner's duty to account.

B) a breach of a partner's duty to serve.

C) a breach of a partner's duty of care.

D) conduct that would constitute competing with the partnership.

69) In the case in the text, McMillian v. McMillian, what did the intermediate court hold?

A) The trial court erred when it denied the plaintiff's motion to compel because it was timely filed under Georgia's rules of civil procedure.

B) The trial court erred when it denied the plaintiff's motion to compel because the revenues and profits of Mail Source may very well be relevant in determining damages.

C) The trial court did not err when it denied the plaintiff's motion to compel because the revenues and profits of Mail Source are irrelevant in determining what profits Corporate Mail Management lost as a result of the competition.

D) The trial court did not err when it denied the plaintiff's motion to compel because the information would be inadmissible at trial.

70) Which of the following statements about silent partners is false?

A) Silent partners are responsible for the cost of hiring a person to do their work.

B) Silent partners merely contribute capital to the partnership.

C) Silent partners do not have the duty to serve.

D) Silent partners have the same liability for partnership debts as any other partner.

71) Which of the following remedies is appropriate for a partner's breach of the duty to serve?

A) Assessing the partner the cost of hiring a person to do his work.

B) Paying the other partners double compensation.

C) Charging the partner a 10 percent penalty against any profits he may be entitled to.

D) Ousting the partner from the partnership.

72) Which of the following is not allowed in a partnership agreement?

A) A reduction of the duty of care owed to the partnership.

B) An increase of the duty of care owed to the partnership.

C) A clause modifying the duty of care owed to the partnership.

D) An elimination of the duty of care owed to the partnership.

73) Partnership agreements often include provisions that excuse partners from liability if they act in good faith and with the honest belief that their actions are in the best interests of the partnership. Such a provision is designed to:

A) promote the formation of partnerships.

B) eliminate any liability of its partners.

C) encourage honest partners to take reasonable business risks without fearing liability.

D) support honest partners, regardless if the risk is reasonable.

74) In Fish v. Tex. Legislative Serv., P'Ship, the case in the text, why did the intermediate court reverse the trial court's judgment?

A) The partnership agreement was silent as to whether additional compensation to a partner required consent of the other partners.

B) The partnership agreement did not allow partners additional compensation without consent from the other partners.

C) The partnership agreement allowed partners to determine their own compensation without consent from the other partners.

D) The compensation clause in the partnership agreement was ambiguous as to whether compensation issues required the consent of all partners.

75) A partner who has the authority to borrow money also has authority to:

A) issue negotiable instruments.

B) convey a partnership's real property.

C) bind the partnership in transactions occurring outside the ordinary course of business.

D) sell the partnership's assets without consent from other partners.

76) A single partner's knowledge of material information relating to partnership affairs is:

A) imputed to the partnership.

B) only considered partnership knowledge if all partners are put on notice.

C) not enough to impute knowledge of such to the partnership.

D) irrelevant when determining whether the partnership had actual knowledge.

77) In small partnerships of 10 or fewer partners, the partnership agreement often requires unanimous partners' agreement for many actions, such as hiring employees and making large contracts. In small partnerships, this is an important requirement because:

A) these actions have a greater impact on each partner.

B) partners of a small partnership typically have more monetary assets at stake.

C) it keeps control within the partnership.

D) it ensures that a single partner will not try to exercise complete control.

78) In NBN Broadcasting, Inc. v. Sheridan Broadcasting Networks, Inc. the court held that:

A) the trial court's judgment was proper because NBN's complaint essentially requested relitigation of the issues the court already decided.

B) the trial court should not have addressed claims that were barred by the doctrine of res judicata.

C) the trial court's judgment was erroneous because none of NBN's claims were previously litigated, thus, not subject to the doctrine of res judicata.

D) the trial court improperly dismissed all of NBN's claims on the basis of res judicata because NBN asserted new, subsequent claims.

79) When a partnership and the other partners are held liable for a partner's tort, they may recover the amount of their ________ liability from the wrongdoing partner, but only if the partner fails to comply with ________.

A) vicarious; the fiduciary duty of care

B) joint and several; duty of loyalty

C) vicarious; duty of loyalty

D) joint and several; the fiduciary duty of care

80) Which of the following statements about LLPs is false?

A) State legislatures created the LLP as a means of reducing the personal liability of professional partners.

B) An innocent partner of an LLP has no liability for the professional malpractice of his partners.

C) LLP statutes grant partners broad protection.

D) LLP statutes hold innocent partners liable for negligence.

81) A partnership adds Ted as a partner to manage their clients' accounts, even after discovering he is a convict on parole for theft. After working for one week, Ted quits and cannot be located. The partners discover that Ted stole $5,000 of their clients' money. Which of the following is true regarding the partners' liability?

A) The partners are not liable.

B) The partners are liable because they authorized the commission of the criminal act.

C) The partners are liable because they knew of Ted's criminal tendencies yet placed him in a position where he may commit a crime.

D) The partners are liable because they participated in the criminal act.

82) Modern criminal codes define a partnership as a(n) ________ that may commit a crime when a partner, acting within the scope of his authority, engages in a criminal act.

A) thing

B) entity

C) person

D) object

83) Which of the following statements regarding lawsuits and partnerships is false?

A) A partnership may sue in its own name.

B) Any partner has authority to initiate a lawsuit.

C) A partnership may be sued in its own name.

D) Partners cannot be sued individually on partnership obligations.

84) Which of the following statements regarding lawsuits and limited liability partnerships is false?

A) Only the LLP is liable on a contractual obligation.

B) Only the LLP may be sued for a contractual obligation.

C) The LLP and the partner who committed the tort are liable.

D) Even LLP members who had no role in the commission of a tort have liability.

85) In Mortgage Grader, Inc. v. Ward & Olivo, L.L.P., the case in the text, the court held that:

A) when one partner commits malpractice, the other partners in the LLP can be held jointly and severally liable for the malpractice.

B) when one partner commits malpractice, the other partners in the LLP cannot be held vicariously liable for the malpractice.

C) when one partner commits malpractice, the other partners in the LLP cannot be held jointly and severally liable for the malpractice.

D) when one partner commits malpractice, the other partners in the LLP can be held vicariously liable for the malpractice.

86) Hannah is a managing partner of Andrusian Worldwide LLP, an accounting and consulting partnership. Acting within her implied authority, Hannah makes a contract for Andrusian to perform an audit for National Motors Company. The audit fee is $325,000. The performance of the audit takes more hours than Hannah expected, because Hannah has failed to determine the number of locations in which National Motors does business prior to setting the audit fee. As a result, Andrusian loses $50,000 on the audit. Has Hannah breached a fiduciary duty?

87) Frazier and Roz are partners. Frazier contributes $30,000 to the partnership, and Roz contributes $10,000. They agree that Frazier will assume 70 percent of partnership losses and that Roz will assume 30 percent. They make no agreement about how to share profits. The partnership has a profit of $60,000 in its first year. How much of the profits is Frazier entitled to receive?

88) Shawnequa is a partner of Cost Hydrohut LLP, an accounting limited liability partnership. One of Shawnequa's partners negligently audits a client, and a bank that relied on the client's audited financial statements suffers damages when the client fails to repay the loan. The bank sues Cost Hydrohut, but its assets are insufficient to pay the entire damages. Will the bank be able to collect the remaining damages from Shawnequa's personal assets?

89) Donna is a partner of Don-Tel Lawn Care, a partnership in the business of providing lawn care services. While mowing a lawn using a partnership mower, Donna negligently runs over a piece of metal, sending pieces of metal flying through the air. One piece hits the client's patio door and shatters the glass. Is Donna liable to the client? Are Donna's partners liable to the client?

90) In a partnership, are partners liable for the crimes committed by another partner? Explain.