Exam Questions Ch.25 The Business Entity: An Introduction

Business Law with UCC Applications, 15e (Sukys)

Chapter 25 The Business Entity: An Introduction

1) A limited liability is the easiest business organization to form.

Difficulty: 2 Medium

Topic: Sole Proprietorships and Other Business Persons

Learning Objective: 25-01 List the most common forms of business associations.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

2) One of the main disadvantages of the sole proprietorship is that the owner has unlimited liability.

Difficulty: 2 Medium

Topic: Sole Proprietorships and Other Business Persons

Learning Objective: 25-02 Outline the advantages and disadvantages of a sole proprietorship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

3) Under RUPA, an association of two or more persons means that the partners have to be 'flesh and blood' individuals.

Difficulty: 1 Easy

Topic: General Partnership Characteristics

Learning Objective: 25-03 Identify the two model acts that govern partnership law.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

4) In a case involving the issue of whether a partnership actually existed, equal management is prima facie evidence.

Difficulty: 3 Hard

Topic: General Partnership Characteristics

Learning Objective: 25-03 Identify the two model acts that govern partnership law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

5) RUPA requires that a partnership agreement be in writing to be enforceable and binding on the partners.

Difficulty: 1 Easy

Topic: General Partnership Characteristics

Learning Objective: 25-03 Identify the two model acts that govern partnership law.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

6) The capital contributions of all partners are considered to be the property of the partnership.

Difficulty: 1 Easy

Topic: General Partnership Characteristics

Learning Objective: 25-04 Describe the differences between the aggregate and the entity theories of partnership.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

7) Under the UPA aggregate theory, a partnership exists as a unique individual person that is separate from the identities of the partners.

Difficulty: 2 Medium

Topic: General Partnership Characteristics

Learning Objective: 25-04 Describe the differences between the aggregate and the entity theories of partnership.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

8) Jean and Bert enter into a written agreement to establish their partnership. Under RUPA, the written agreement has to specify that their partnership has a continuity of existence.

Difficulty: 3 Hard

Topic: Partnership Formation

Learning Objective: 25-05 Explain the nature of a partnership agreement.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

9) Under RUPA, certain types of profit sharing, such as the repayment of a debt, not rise to the level needed to create a partnership.

Difficulty: 2 Medium

Topic: Partnership Formation

Learning Objective: 25-05 Explain the nature of a partnership agreement.; 25-06 Explain when profit sharing does not create a partnership.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

10) Under the Uniform Partnership Act, when a partner is deceased, her interest in real property became a tenancy in partnership held by the partnership and passed to the surviving partners.

Difficulty: 2 Medium

Topic: Partnership Formation

Learning Objective: 25-07 Explain what constitutes a person in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

11) Tom, Lori, Joseph, and Carol agree to do business together, but haven't agreed on anything about profits. The group appoints Tom as 'leader.' A court would consider Tom's appointment by itself as clear evidence of a partnership.

Difficulty: 3 Hard

Topic: Partnership Formation

Learning Objective: 25-07 Explain what constitutes a person in partnership law.; 25-06 Explain when profit sharing does not create a partnership.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

12) Mia works as an assistant in a pharmacy. Her receipt of monthly wages, by itself, makes her a partner in the pharmacy.

Difficulty: 3 Hard

Topic: Partnership Formation

Learning Objective: 25-07 Explain what constitutes a person in partnership law.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

13) Under the RUPA, a dissociation takes place whenever a partner is no longer associated with the running of the firm.

Difficulty: 2 Medium

Topic: Partnership Property Rights and Duties

Learning Objective: 25-07 Explain what constitutes a person in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

14) A term partnership is one that any partner may leave without liability.

Difficulty: 2 Medium

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

15) Under the RUPA, a term partnership dissociation occurs when a partner files bankruptcy.

Difficulty: 2 Medium

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

16) Under the UPA, partners are jointly and severally liable for damages resulting from breach of contract actions.

Difficulty: 2 Medium

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

17) In the Classic Case, The Liability Blues, PNC Bank v. Michael Farinacci, the main issue was whether the defendants be held jointly liable under the old law (UPA) or jointly and severally liable under the new law (RUPA).

Difficulty: 2 Medium

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

18) Under the RUPA, partnerships at will are automatically dissolved when a partner dies or enters bankruptcy.

Difficulty: 2 Medium

Topic: Dissociation and Dissolution

Learning Objective: 25-09 Distinguish between dissociation and dissolution in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

19) Attorneys Joseph, Sam, Nayeli, and Juanita agree to form a limited liability partnership (LLP), JUSTICE LAWYERS, LLP and each contribute $10,000 to the startup of this firm. In this LLP, each partner is personally liable because of the capital contribution, and may be sued in a separate action or in a joint action.

Difficulty: 2 Medium

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

20) John, Sam, and Mark decided to form a limited partnership (LP) with John being the general partner, and Sam and Mark as limited partners. The LP is sued and the court awards $100,000 against the LP. All three partners are jointly and severally liable.

Difficulty: 2 Medium

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

21) Which of the following is an advantage of a sole proprietorship?

A) The owner of a sole proprietorship has no liability.

B) The owner of a sole proprietorship has complete control over the business.

C) The sole proprietorship's existence does not depend entirely upon the sole proprietor.

D) Owners of sole proprietorships can raise a lot of cash quickly for expansion purposes.

Difficulty: 2 Medium

Topic: Sole Proprietorships and Other Business Persons

Learning Objective: 25-02 Outline the advantages and disadvantages of a sole proprietorship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

22) Arian is a sole proprietor and owes a number of business creditors. The business creditors may sue to:

A) only take Arian's business assets.

B) only take Arian's personal assets.

C) take both Arian's business and personal assets.

D) not take any assets, but only the profits of the business.

Difficulty: 3 Hard

Topic: Sole Proprietorships and Other Business Persons

Learning Objective: 25-02 Outline the advantages and disadvantages of a sole proprietorship.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

23) Under the RUPA, a partnership:

A) has continuity of existence.

B) is considered an entity in all situations.

C) is no longer viewed as an aggregate in relation to liability.

D) has no liability for the obligations made by its partners.

Difficulty: 2 Medium

Topic: General Partnership Characteristics

Learning Objective: 25-03 Identify the two model acts that govern partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

24) Alan and Baker are disappointed in the profitability of their A and B Partnership. They want to join their partnership with the X and Y Partnership. Is it possible for a partnership to be a partner?

A) Yes

B) No

C) Yes, if the partners agree to personally guarantee the debts of the new partnership

D) No, because a partner must be an entity

Difficulty: 3 Hard

Topic: General Partnership Characteristics

Learning Objective: 25-04 Describe the differences between the aggregate and the entity theories of partnership.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

25) Alan and Delen enter into a partnership agreement with a $10,000 capital contribution. Six months later, Delen loans Alan $1,000. The loan is a:

A) partnership capital contribution.

B) loan to the partnership, rather than to Alan.

C) loan to both the partnership and to Alan.

D) personal loan to Alan only.

Difficulty: 3 Hard

Topic: General Partnership Characteristics

Learning Objective: 25-05 Explain the nature of a partnership agreement.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

26) The Titanic Partnership's loan from Big Bank is structured so that payments on the loan are made out of profits and the amounts of the payments vary according to profitability. Which of these best describes this arrangement?

A) This is evidence of a partnership between Titanic and Big Bank; additional evidence may overcome this assumption.

B) This is conclusive evidence of a partnership between Titanic and Big Bank.

C) This may be evidence of a partnership between Titanic and Big Bank.

D) This is not evidence of a partnership between Titanic and Big Bank.

Difficulty: 3 Hard

Topic: Partnership Formation

Learning Objective: 25-07 Explain what constitutes a person in partnership law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

27) Thomas invests $10,000 in the Thomas and Trudy partnership named Tremendous Enterprise. Thomas needs $2,000 for medical expenses and insists that he is entitled to withdraw that amount immediately from what he has invested. Trudy asserts that the $10,000 investment is partnership property. Under the RUPA, who owns the $10,000?

A) Tremendous Enterprise

B) Thomas only

C) Thomas individually and Trudy individually

D) The $10,000 is owned by no one, but is merely a future interest of Thomas.

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

28) A partner's ________ is her share of the ________ plus any ________, which is any remaining funds after dissolution.

A) vested property right; profits; surplus

B) economic interest; profits and losses; surplus

C) property; surplus; losses

D) economic interest; surplus; vested property rights

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

29) Susan and Stanley are in a partnership called Easy Partnership. Susan purchases a truck with her personal funds with title to the truck naming Easy Partnership. Who owns the truck?

A) Susan

B) Susan and Stanley

C) Easy Partnership only

D) Both Susan and Easy Partnership

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

30) Jackie is interested in the property of the Big Partnership, in which Jackie is a full partner. She wants to mortgage the property in order to collateralize loans for the organization. However, not all the partners agree with Jackie. What is Jackie's legal position with regard to the mortgage under UPA?

A) Her partners' non-agreement is legally irrelevant.

B) Jackie's interest in the partnership property cannot be assigned.

C) Jackie can mortgage her share of the organization's property.

D) UPA does not address this issue, and a court will decide on a case by case basis.

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

31) Under the UPA, a partner in a tenancy in partnership has all the following rights except:

A) an equal right to possess and use specific partnership property for partnership purposes, but not for that partner's personal use.

B) rights in partnership property that are not subject to attachment for personal debts.

C) in the case of a partner's death, the right to have the deceased partner's interest in real property held by the partnership pass to the surviving partners.

D) the right to be a co-owner of partnership property with no interest in partnership property which can be transferred, either voluntarily or involuntarily.

Difficulty: 2 Medium

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

32) The RUPA has eliminated:

A) all management rights enjoyed by partners.

B) the concept of tenancy in partnership.

C) partnership entity status.

D) each partner's interest in the firm.

Difficulty: 2 Medium

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

33) John knows that The Franklin Enterprises Partnership, in which John is a partner, is interested in purchasing a particular tract of land for a business location. Can John lawfully have his aunt buy the land, so that she may resell the land to Franklin Partnership?

A) No, it violates John's duty of care.

B) Yes, assuming the price to Franklin was a fair market price.

C) No, it violates John's duty of loyalty.

D) Yes, the aunt is not a Franklin partner and has no loyalty to it.

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

34) Under RUPA, a ________ takes place whenever a partner is no longer associated with the running of the firm.

A) dissolution

B) dissociation

C) rescission

D) devolution

Difficulty: 2 Medium

Topic: Dissociation and Dissolution

Learning Objective: 25-09 Distinguish between dissociation and dissolution in partnership law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

35) Charlotte is declared mentally incompetent by a court and is unable to participate as a partner in AMLAP Enterprises. Charlotte wants to leave the AMLAP partnership, but is contractually obligated for three more years. Can Charlotte leave the AMLAP partnership?

A) Yes, she can do so without any liability to the partnership.

B) No, there is no right to leave.

C) Yes, she has a right to leave, but is liable for breach of contract.

D) No, there is no right to leave unless all the partners agree.

Difficulty: 3 Hard

Topic: Dissociation and Dissolution

Learning Objective: 25-09 Distinguish between dissociation and dissolution in partnership law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

36) Jack has an auto accident while on business for Small Enterprises, an RLLP consisting of Jack and Alex. Who is liable for damages resulting from the auto accident?

A) Small Enterprises only

B) Jack only

C) Jack and Alex only

D) Small, Jack, and Alex

Difficulty: 3 Hard

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

37) In a limited partnership, general partners:

A) take an active part in management, but have unlimited liability for the firm's debts.

B) take an active part in management, but have no liability for the firm's debts.

C) take an active part in management, but are nonparticipating investors.

D) take no part in management, but contribute cash or property.

Difficulty: 3 Hard

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

38) In a general partnership, which of the following is true of limited partners?

A) Limited partners take an active part in the management of the firm.

B) A limited partner's nonpartnership property can be used to satisfy any debts owed by the firm.

C) Limited partners are nonparticipating investors.

D) Limited partners have unlimited liability for the firm's debts.

Difficulty: 3 Hard

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

39) Tina is a limited partner in Aon Enterprises, a limited partnership, while Mark is a general partner. Tina assumes management duties for three weeks, while Mark is recovering from heart surgery. Most likely, who or what has liability for partnership actions during this period?

A) Aon Enterprises only

B) Mark only

C) Tina only

D) Mark and Tina

Difficulty: 3 Hard

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

40) When forming a limited partnership, it is critical to know that:

A) general partners have limited liability for the firm's debts.

B) a certificate of limited partnership must be filed with the Secretary of State's office.

C) limited partners are participating investors.

D) general partners can only take a limited part in the management of the firm.

Difficulty: 3 Hard

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

41) Anita wants to go into business for herself, but does not know how to start. Discuss the best way for Anita to begin.

Difficulty: 3 Hard

Topic: Sole Proprietorships and Other Business Persons

Learning Objective: 25-01 List the most common forms of business associations.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

42) Todd and Walker form a venture to operate snow cone stands in Smallville. The stands are only open for five warm weather months. The remainder of the year, Todd and Walker do no business together. Discuss the legal status of their business.

Difficulty: 3 Hard

Topic: General Partnership Characteristics

Learning Objective: 25-03 Identify the two model acts that govern partnership law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

43) Tangent Enterprises is a partnership consisting of Delen, Javid, and Kaya. Kaya leaves the partnership to do volunteer work in Africa. Discuss the legal status of Tangent Enterprises.

Difficulty: 3 Hard

Topic: General Partnership Characteristics

Learning Objective: 25-04 Describe the differences between the aggregate and the entity theories of partnership.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

44) Brylea is paid 10% of the net profits by Delta Partnership as compensation for her work for Delta. Delta ceases business, owing many creditors who attempt to collect from Brylea, asserting that Brylea is a partner. Discuss Brylea's partnership status and liability.

Difficulty: 3 Hard

Topic: Partnership Formation

Learning Objective: 25-07 Explain what constitutes a person in partnership law.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

45) A large machine is purchased by Vida and is sometimes used for her personal work and sometimes used for work by the partnership of which she is a member. Discuss what factors a court will consider in deciding if the machine is partnership property.

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

46) Jackson, Thomas, and Susan are partners in an investment firm. There is a vote taken to sell government bonds owned by the partnership, with Thomas and Susan opposed and Jackson in favor. Jackson decides to sell the government bonds and the partnership loses $50,000. Discuss Jackson's liability to the partnership.

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

47) Morgan, Slater, and Jergenston were partners in a legal consulting partnership. Jergenston pocketed $500,000 he had solicited in bank loans for expanding the partnership. When Morgan and Slater discovered Jergenston's impropriety, Jergenston told them, "Tough luck, but as partners, we are jointly liable on this debt and must pay off the $500,000 plus interest together." Was Jergenston correct? Explain.

Difficulty: 3 Hard

Topic: Partnership Property Rights and Duties

Learning Objective: 25-08 Identify the different views of specific partnership property in partnership law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

48) Due to a typing mistake, Delta, a limited partner in Derby Limited Partnership, is identified in the certificate of limited partnership as a general partner. Discuss how this error should be corrected.

Difficulty: 3 Hard

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

49) Striuli asks Sarducci to become a limited partner in Avionics Ltd., a limited partnership that will sell computer software. Both Striuli and Sarducci delay filing the certificate of limited partnership. If the limited partnership is sued before the certificate is filed, will Sarducci be named as a defendant? Explain.

Difficulty: 3 Hard

Topic: Other Forms of Partnership Business

Learning Objective: 25-10 Distinguish between a registered limited liability partnership and a limited partnership.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

50) Wellington and Haggerty were partners in a souvenir shop. It is a traditional general partnership. While on a regular delivery trip, Wellington caused an accident when he ran a red light. Haggerty claimed that only Wellington was liable for the injuries sustained by the other driver. Was Haggerty correct? Explain.

Difficulty: 3 Hard

Topic: General Partnership Characteristics

Learning Objective: 25-03 Identify the two model acts that govern partnership law.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation