Test Bank Chapter 39 Partner Dissociation & Dissolution

Business Law, 17e (Langvardt)

Chapter 39 Partners' Dissociation and Partnerships' Dissolution and Winding Up

1) Andrew, being a partner, has appointed a custodian for his property. Therefore, he has committed a wrongful dissociation.

2) A partner has the power to dissociate from the partnership at any time.

3) The death of a partner before the expiration of the term of a partnership is a nonwrongful dissociation.

4) A & K Inc. obtains a charging order against Bob, a partner in Foter and Poter Partnership. Such an act will cause the partnership to dissociate.

5) Dissociation is the term for adding new members to an existing partnership.

6) An individual who leaves a partnership by nonwrongful dissociation is entitled to receive their value of the partnership.

7) A heated disagreement is grounds for dissociation of a partner with the business.

8) Only the dissociations listed in the RUPA are allowed.

9) Barks and Paws partnership is in the business of selling pit bull dogs. After operating the partnership for one year, the state outlawed the breeding and sales of pit bulls. Assuming this is the only activity of the partnership, dissolution of the partnership will be required.

10) The partnership rules of dissociation and dissolution apply to joint ventures.

11) A partner charged with winding up of the partnership has implied authority to take such appropriate actions necessary to accomplish the wind up.

12) Normally, the implied authority of a winding up partner includes no power to borrow money in the name of the partnership.

13) In the absence of a partnership agreement, the RUPA provides that any partner who has not wrongfully dissociated may perform the winding up.

14) Partners who wind up the business of a dissociated partnership have implied authority to sell all the assets of the partnership.

15) Termination occurs after all partnership assets have been distributed.

16) Mark, John, and Graham are partners. Mark voluntarily and nonwrongfully leaves the partnership. However, the partnership has a three-year lease with Green Real Estate Inc. So long as Mark leaves the partnership, he is no longer liable for the lease agreement.

17) A novation is said to take place when continuing partners release a dissociated partner from liability but creditors do not release him.

18) Under the RUPA, when the dissociated partner has not wrongfully dissociated and there is no partnership agreement on the issue, he should be paid within 120 days after his written demand.

19) Under RUPA, a new partner just joining a partnership has no liability for past debts of the business.

20) A new partner to an LLP is liable only to the amount of capital invested in the business.

21) Which of the following is true about dissociation?

A) It is a partner's right to dissociate himself from the partnership.

B) A partner has the power to dissociate from the partnership at any time.

C) When a partner's dissociation violates the partnership agreement, it is nonwrongful dissociation.

D) Consequences of wrongful and nonwrongful dissociations are always the same.

22) Which of the following is a nonwrongful dissociation?

A) A partner's filing of a bankruptcy petition

B) A partner's retirement at age 60 when the partnership agreement requires the partners to retire at age 70

C) A partner's willful and persistent breach of the partnership agreement

D) A partner's death

23) Which of the following causes a dissociation of a partnership?

A) Withdrawal of a partner from a partnership at will

B) Three partners disagreeing on a matter in the ordinary course of business

C) A partner being provided his partnership interest

D) Addition of a partner to the partnership

24) Hagus was a partner at Ace-Star General partnership. The partnership agreement stated that all partners would continue as partners until the year 2010. However, in 2006, Hagus was offered another business opportunity that was more attractive than remaining a partner with Ace-Star. Following this, he dissociated himself from Ace-Star. Which of the following is true with regard to this situation?

A) Hagus dissolved the Ace-Star General partnership.

B) Hagus used his power to dissociate to withdraw from the partnership.

C) Hagus eliminated his liability to the partnership obligations.

D) Hagus used his right to dissociate to withdraw from the partnership.

25) Anthony, a partner of a partnership firm, was convicted for rash driving. Following this, all other partners dissociated him from the partnership, as per the terms of the agreement. This is an example of a ________ dissociation.

A) wrongful

B) nonwrongful

C) discriminatory

D) valid

26) What is the term for a dissociation that violates the partnership agreement?

A) Wrongful dissociation

B) Breach dissociation

C) Fraud dissociation

D) Agent dissociation

27) Mr. Smith and Mr. Blue enter into a partnership at will in which each owns half of the business. Mr. Blue decides to leave the partnership. What should Mr. Blue be paid for leaving the business?

A) Mr. Blue should be paid half of the value of the business.

B) Mr. Blue should receive 15% of the value of the business for leaving.

C) Mr. Blue receives 1/3 of the value of the business for leaving.

D) Mr. Blue receives nothing for his dissociation.

28) Which of the following is a consequence of wrongful dissociation?

A) The dissociated partner may demand dissolution of the partnership.

B) The partnership must terminate on grounds of wrongful dissociation.

C) The dissociated partner should contribute to performing the winding up.

D) The dissociated partner is not entitled to receive the buyout price until the term of the partnership has expired.

29) Which of the following causes dissociation?

A) A partner's transfer of his transferable partnership interest

B) A creditor's obtaining a charging order

C) A partner's wrongful conduct materially affecting the partnership business

D) The addition of a new partner to a partnership

30) Which of the following is a wrongful dissociation?

A) A partner retires at age 70 when the partnership agreement allows partners to retire at age 60.

B) A partner assigns his partnership assets to a personal creditor.

C) A judicial dissociation due to a partner's persistent and substantial use of partnership property for his own benefit.

D) Death of a partner.

31) Which of the following is true about a wrongfully dissociated partner?

A) He may perform the winding up.

B) He may demand the partnership be dissolved.

C) He is not entitled to the value of any of his partnership interest.

D) He is entitled to his share of the partnership interest, minus the damages he caused the partnership.

32) Which of the following is true about the effect of partnership agreement?

A) The dissociations listed in the RUPA are merely default rules.

B) The partners cannot change the definition of wrongful dissociations.

C) Partners cannot require dissociation if a partner transfers his transferable partnership interest.

D) The effects of nonwrongful dissociation cannot be changed.

33) Which of the following is true about dissolution and winding up the partnership?

A) In liquidation, the assets may not be sold separately.

B) Winding up always requires the sale of assets.

C) During winding up, the partners continue as fiduciaries to each other.

D) Most firms provide the partners with the firms' assets rather than proceeds from the sale of the same.

34) What is the term for the orderly sale of the assets of the partnership as part of dissociation?

A) Winding up

B) Incorporation

C) Organizing

D) Foreclosure

35) To avoid winding up:

A) a unanimous vote of all partners, who have not wrongfully dissociated, is necessary to continue business.

B) two-thirds majority of partners wanting to continue business is necessary.

C) the court has to pass judgment to continue business.

D) the remaining partners must file a continuing statement with the public office.

36) Which of the following causes dissolution and winding up?

A) A partner's transfer of his transferable partnership interest

B) When the partnership has completed the undertaking for which it was created

C) A creditor's obtaining of a charging order

D) The addition of a new partner to the partnership

37) Which of the following is an implied authority of a partner winding up the business of an accounting partnership?

A) Entering into new contracts made after the dissolution

B) Disposing of the partnership's excess supplies

C) Making a contract to audit the financial records of a new client

D) Borrowing money in the name of the partnership

38) Which of the following is true about partnership rules for mining partnerships?

A) Mining partnerships are easiest to dissolve.

B) The transferability of mining partnership interest is restricted.

C) A mining partner may sell his interest to another person.

D) The death of a mining partner affects a dissolution.

39) Which of the following is an apparent authority during winding up?

A) Providing a third-party notification of the dissolution

B) Continue making new contracts with disregard to the third parties' awareness about the same

C) Conducting business the way it was before its dissolution

D) Filing a Statement of Dissolution with the secretary of state

40) Which of the following is true about eliminating partners' apparent authority?

A) Eliminating apparent authority is not a safe practice during winding up.

B) Apparent authority cannot be eliminated by merely informing the existing business clients.

C) Filing a Statement of Dissolution will increase the partners' apparent authority.

D) The partnership should post notice of the dissolution at its place of business to let third parties know.

41) When the winding up partners disagree during the process:

A) majority partner approval is required for actions in the ordinary course of winding up.

B) unanimous partner approval is required for every decision.

C) unanimous partner approval is required for actions in the ordinary course of winding up.

D) majority partner approval is required for every decision.

42) Amos, Beverly, Carlos, and Dan were partners in a partnership in which the agreement states that the partnership will continue until 2010. Amos died in 2006. What vote of the remaining partners is necessary to continue operating the partnership business?

A) A simple majority vote

B) A two-thirds majority vote

C) A three-quarters majority vote

D) A unanimous vote

43) When proceeds from the sale of partnership assets are being distributed during winding up, which of the following is settled first?

A) Payment to partners to the extent of their capital contributions

B) Payment to creditors of the partnership

C) Payment to partners to the extent of their share of profits

D) Payment to creditors after charging the partners' shares of losses

44) The Barrel & Wine partnership is being wound up and liquidated. Net assets are to be distributed according to which of the following order of priority?

A) First to creditors who are not partners, then to creditors who are partners

B) First to all creditors, then to partners as per their capital accounts

C) First to partners per their capital accounts, then to all creditors

D) First to partners who have made loans to the partnership, then to all other creditors

45) In a limited liability partnership, most of the partners have liability for partnership obligations:

A) beyond the partnership assets.

B) up to the extent of the partnership assets.

C) as per the partnership rules & regulation.

D) as per the demand of the partner.

46) Which of the following is true about charging a partner's capital account during distribution?

A) Losses from sale of partnership assets during winding up are not charged against a partner's capital account.

B) Partners are given the gross amount existing in their capital accounts.

C) On account of negative balance in a partner's account, other partners are under no obligation to contribute to set off the shortage.

D) If partnership creditors cannot be paid from the partnership assets, the creditors may proceed against the partners' capital accounts.

47) If a partner fails to contribute the amount equal to her negative capital account balance, then it can be recovered:

A) from that partner's assets.

B) by obtaining an undertaking from that partner.

C) from the other partners.

D) by charging the creditor's account.

48) Which of the following is true about asset distribution in an LLP?

A) If the LLP has been profitable, each partner will receive the net amount in his capital account.

B) The partners have liability for partnership obligations beyond the firms' assets.

C) An LLP partner has to contribute an amount equal to the negative balance in his account to pay creditors.

D) The creditors must sue the partner to force the partner to pay the debt.

49) Termination of a partnership occurs automatically after:

A) wrongful dissociation has occurred.

B) dissolution has occurred.

C) the assets of the partnership have been distributed.

D) the winding up process has begun.

50) Which of the following is true about successor's liability for predecessor's obligations?

A) Once continuation begins after dissociation, the creditors remain the creditors of the predecessor.

B) Partners may escape prior liabilities by forming new partnerships.

C) There has to be an agreement with creditors to eliminate liability for prior obligations.

D) The original partners are not liable for obligations incurred prior to dissociation.

51) Emmy, Shane, and Rusty are partners of the firm Esha Associates. Rusty nonwrongfully dissociates himself from the partnership. Under these circumstances, Rusty will not be liable to the creditors for the liabilities incurred while he was partner only:

A) if all the partners consent to it.

B) if there is an agreement.

C) if there is a court order.

D) by novation.

52) Leonard, Ted, and Julius are partners at Jutle Associates. They signed a two-year lease agreement with Property Company for business purposes. Five months into the new agreement, Leonard dissociates from the partnership. Under what circumstances will Leonard no longer be liable on the lease agreement?

A) Leonard gives proper notice to Property Company of his intent to dissociate from Jutle.

B) The three partners and Property Company enter into an appropriate novation agreement.

C) Leonard filed a Statement of Dissociation more than 90 days prior to leaving the partnership.

D) Property Company will not serve to relieve Leonard of liability under the lease agreement.

53) Carlita retires from Mortex Associates, a partnership. The business is continued by the remaining partners. What is Carlita's liability on debts incurred while she was a partner?

A) Carlita has liability to the extent of her capital contribution.

B) Carlita is fully liable.

C) Carlita has no liability.

D) Carlita has liability to the extent of partnership assets at the time of dissociation.

54) Ace Software Co. signed a deal with Gill Associates, a partnership, and has extended credit to it. Paul, a partner in Gill associates, retires but his partners continue the business. In order to release Paul from the debt owed to Ace, which of the following must occur?

A) The continuing partners must release Paul from liability on the debt.

B) Paul must not secure his release from Ace.

C) Paul has to contribute toward the debt as early as possible.

D) The continuing partners should volunteer to set off Paul's liability.

55) Which of the following is true about the liability of a dissociated partner for obligations incurred while a partner?

A) To complete the requirements for novation, a dissociated partner must also secure his release by the partnership's creditors.

B) Dissociated partners are not liable to partnership creditors for partnership liabilities incurred while they were partners.

C) Continuing partners must not indemnify dissociated partners from liability on partnership obligations.

D) A creditor's agreement to release an outgoing partner from liability may be implied, but usually it is express.

56) The RUPA makes a dissociated partner liable as a partner to a party that entered into a transaction with the continuing partnership, unless:

A) the other party believed the dissociated partner was still a partner.

B) the transaction was entered into more than two years after the partner has dissociated.

C) the transaction was entered into 90 days before the filing of a Statement of Dissociation with the secretary of state.

D) the other party was not made aware of the partner's dissociation.

57) Bob was a partner in F & B Co., a partnership. Bob dissociated himself from it on June 1, 2000. On December 1, 2000, F & B Co. entered into a contract with Carey. Under which of the following scenarios may Bob be held liable to Carey, even though he is no longer a partner?

A) Bob files a Statement of Dissociation with the secretary of state.

B) Bob tells Carey on November 1, 2000 that he is no longer a partner.

C) The contract was entered into on the company's premises and Bob's name is still listed as a partner on the office door.

D) Bob files a Statement of Dissociation with the court.

58) In an LLP that is continuing business after dissociation:

A) a dissociated partner has high risk of continuing liability for contracts.

B) a dissociated partner has less risk of continuing liability for torts occurring before or after the partner leaves the LLP.

C) the partner's liability is limited beyond the LLP's assets.

D) the buyout payment made to a dissociated LLP partner will impair the ability of the LLP to pay its creditors.

59) Mark is a partner in Harbin Associates, a partnership. The term of the partnership agreement is one year and does not include a clause on buyouts. After the term expires, Mark decides to dissociate while the remaining partners wish to continue. Under the RUPA:

A) the remaining partners must wind up and terminate the partnership.

B) they must buy out Mark of his interest on Mark's demand for the same.

C) they must not pay Mark the greater of the liquidation price or the sale price of the business.

D) they can renew their partnership agreement.

60) As per RUPA, if a nonwrongfully dissociated partner demands payment from the partnership, he should be paid:

A) within 90 days from the date of demand.

B) within 120 days from the date of demand.

C) within no such specified period.

D) within such time as per the terms and conditions of the partnership.

61) Which of the following is true about buyout of nonwrongfully dissociated partners?

A) The partnership may wait to buy out the partner until the end of the partnership's term.

B) The buyout price must deduct the interest from the date of dissociation.

C) The dissociated partner cannot ask the court to determine the buyout price.

D) The partner must be paid in cash within 120 days.

62) Poxabogue Associates, a partnership, is dissociated by the retirement of a partner. The business is continued by the remaining partners and a new partner, Enrica. What is Enrica's liability to creditors for partnership obligations that arose before she became a partner?

A) Enrica is liable to the extent of partnership assets.

B) Enrica is liable only if she agrees to assume the retired partner's liability.

C) Enrica is fully liable.

D) Enrica has no liability.

63) Which of the following is true about the effect of LLP statutes after appointment of a new partner?

A) RUPA provides that the new partner has full liability for the LLP's obligations.

B) The former partners will be personally responsible on committing a malpractice.

C) For obligations incurred before his admission, the new partner may not be held liable.

D) LLP partnership agreements often change the RUPA rule about a new partner's liability.

64) Mr. Green enters into a partnership with IT Doctors LLP. Mr. Green's capital investment into the business is $10,000. Shortly after joining the new business, a client sues the IT Doctors LLP and wins a judgment of $750,000. How much is Mr. Green liable for?

A) $10,000

B) $100,000

C) $750,000

D) $0

65) If a disagreement among partners threatens the economic viability of the partnership, a court may order a ________.

A) winding up

B) wrongful dissociation

C) nonwrongful dissociation

D) dissolution

66) In the case in the text, Meyer v. Christie, why did the intermediate court affirm the jury's damages award?

A) The defendants conspired to take the development opportunity from the plaintiffs.

B) Expert testimony proved that the plaintiffs suffered a loss of $7 million.

C) The award was proven beyond a reasonable doubt at trial.

D) It was reasonable under the circumstances and the award could not be exact because of the defendants' own actions that gave rise to the lawsuit.

67) Distributions-in-kind during a winding up occurs when:

A) partners receive proceeds from the partnership's assets.

B) partners receive the assets rather than proceeds from their sale.

C) partners receive the assets they personally attributed to the partnership.

D) partners receive bonuses when the sale of their assets is more than their debt.

68) In Urbain v. Beierling, the case in the text, why did the court hold that the defendants did not breach the partnership agreement when they dissolved the partnership?

A) The partnership agreement did not set forth a specific term.

B) The partnership agreement only required a majority vote.

C) The RUPA only required a majority vote.

D) The RUPA allows the parties to take such action when a dispute arises.

69) A winding-up partner is entitled to ________ for her winding-up services, in addition to her normal share of profits.

A) the right of first refusal

B) her requested fee

C) 10% of the proceeds from all assets

D) reasonable compensation

70) A winding-up partner may not inter into a new contract unless:

A) the contract is in furtherance of the partnership's purpose

B) the contract aids the liquidation of the partnership's assets.

C) he honestly believes it is in the best interest of the partnership.

D) it is with a previous client.

71) Which of the following would be within a winding-up partner's implied authority to borrow money?

A) Taking a new loan to consolidate the partnership's existing loans to make payments more convenient.

B) Taking a new loan to buy more assets.

C) Refinancing a loan to preserve a valuable asset.

D) Refinancing a loan to buy more time.

72) Winding-up partners have ________ authority to conduct business as they did before dissolution, when notice of the dissolution is not given to those persons who know of the partnership prior to its dissolution.

A) actual

B) implied

C) apparent

D) express

73) If a partner files a Statement of Dissolution with the secretary of state, a third party is deemed to have notice of such:

A) 60 days after the filing.

B) 90 days after the filing.

C) 30 days after the filing.

D) 120 days after the filing.

74) When winding-up partners disagree over an extraordinary decision, such as continuing the business for an extended period of time, ________ approval is required.

A) unanimous partner

B) majority partner

C) minority partner.

D) any partner's.

75) In the case in the text, Paciaroni v. Crane, what did the court conclude?

A) The business of the partnership should cease during winding up.

B) The partnership was required to sell all assets within a reasonable amount of time.

C) The business of the partnership should continue during winding up.

D) All winding-up partners must be included in the decision-making.

76) 76. While partnership creditors still have a priority over a partner's creditors with regard to partnership assets, partnership and partners' creditors share ________ in the assets of individual partners.

A) one-third

B) two-thirds

C) equally

D) pro rata

77) If a partner of an LLP is not liable to a creditor that the remaining partners are liable to, then he:

A) must contribute the shortfall.

B) must contribute based on his interest in the partnership.

C) cannot be forced to pay the debt.

D) must split the amount between the other partners and himself.

78) Which of the following is a mutual agreement, between all parties concerned, for the discharge of a valid existing obligation by the substitution of a new valid obligation on the part of the debtor or another?

A) Novation

B) Ratification

C) Accession

D) Proclamation

79) A(n) ________ in the nature or time of payment of an obligation operates as a novation for an outgoing partner, when the creditor has knowledge of the partner's dissociation.

A) material modification

B) alteration

C) reasonable modification

D) industry change

80) In the case in the text, Dixon v. Crawford, McGilliard, Peterson & Yelish, why did the court hold that the clients Dixon took with him did not impact the value of the firm's goodwill?

A) Neither Dixon nor Crawford had a proprietary interest in the clients.

B) The dissociated partner is compensated for value taken by his departure.

C) The evidence indicated Dixon did not intentionally steal clients.

D) Crawford had a proprietary interest in the clients.

81) ________ may be proved by a creditor's knowledge of a partner's withdrawal and his continued extension of credit to the partnership.

A) Implied novation

B) Actual novation

C) Apparent novation

D) Express novation

82) As discussed in the text, which of the following would not cause a partnership to dissolve in Austria?

A) Expiration of the period for which it was entered into

B) Bankruptcy proceedings against the partnership assets

C) Continuing business would only create a loss.

D) Judicial decision

83) A partnership should file a Statement of Dissociation with:

A) the Federal Trade Commission.

B) the Better Business Bureau.

C) the secretary of state.

D) the courts.

84) If the dissociated partner and the partnership cannot agree on the buyout price:

A) the partnership must pay the partner its estimate of the buyout price with interest.

B) the partnership must pay the partner its estimate of the buyout price only.

C) the partnership must pay the partner the median price between its estimate price and the partner's requested price.

D) the partnership does not have to pay the partner until there is a court order.

85) The buyout price includes interest from the date:

A) of the dissociation.

B) of the written request.

C) the partnership formed.

D) the partnership formally dissolved.

86) Abraham, who is a partner in Adona's firm, has been found guilty of the crime of tax evasion. His partners at the firm want to expel him from partnership but they are not ready to give up his interest in the partnership. Is Abraham entitled to his interest in the partnership?

87) Xavier, Yellie, and Zelda are partners of Koral Associates. The term of the partnership is 5 years, but Zelda withdraws after 1 year because she no longer wished to continue. Discuss the nature and consequences of Zelda's dissociation.

88) Discuss the rules of dissociation and dissolution for mining partnerships.

89) Discuss a partner's authority to borrow money during winding up.

90) Karla retires from Orton Associates, a partnership. The business is continued by the remaining partners and Wes, a new partner who has agreed to assume Karla's liability for partnership obligations. Creditors have not been notified of Karla's retirement. What are Karla and Wes's liabilities to the creditors?