Question 1

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding
A) ​only if a copy of the agreement is filed in the appropriate state office.
B) ​only if the agreement is printed in hard copy and signed by the parties.
C) ​only if the parties exchange valid consideration.
D) ​without more.

Accepted Answer

A partnership agreement can be legally binding without any formal requirements, such as filing with a state office or printing in hard copy. As long as the parties have a mutual understanding and exchange valid consideration, the partnership agreement is valid.

Question 2

Selections, a general partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions
A) ​a majority of the partners must agree.
B) ​Tony rules.
C) ​the senior partner decides.
D) ​four of the partners must agree.

Accepted Answer

In a general partnership, decisions are typically made by a majority vote of the partners. In this case, Tony only has a one-third interest and the other four partners each have a one-sixth interest, meaning that Tony does not have enough voting power to rule on management decisions. Therefore, a majority of the partners must agree in order to make a decision.

Question 3

Brad and Carol are partners in Doctors for Children, a medical clinic. Brad's dissociation from the firm results in
A) ​the automatic termination of the firm's legal existence.
B) ​the partnership's buyout of Brad's interest in the firm.
C) ​the immediate maturity of all partnership debts.
D) ​the temporary suspension of the partnership's business.

Accepted Answer

When a partner dissociates from a partnership, it usually results in the buyout of that partner's interest in the firm. This means that the remaining partners will pay the dissociating partner for their share of the business, and the dissociating partner will no longer be a part of the partnership. However, this does not automatically terminate the partnership's legal existence, result in the immediate maturity of all partnership debts, or temporarily suspend the partnership's business.

Question 4

Kim and Lyle are partners in K&L Sales, which exports technical equipment. If Congress declares that the equipment can no longer be exported, K&L
A) ​can continue its business for one twelve-month period.
B) ​can continue its business indefinitely.
C) ​dissolves immediately unless the partners change its business.
D) ​is immediately subject to criminal prosecution and penalties.

Accepted Answer

If Congress declares that the equipment can no longer be exported, K&L will be affected by this change in business environment. As a result, K&L will have to change its business or dissolve immediately. It cannot continue its business indefinitely or for a twelve-month period as the change in export rules will make its business unviable. Additionally, criminal prosecution and penalties are not applicable in this scenario as K&L has not committed any criminal offense.

Question 5

Fact Pattern 3-3
Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 3-3.The partners decide to dissolve Equity Lending. Duke collects and distributes the firm's assets. This results in
A) ​nothing with respect to the firm's existence.
B) ​the continuation of the firm's business.
C) ​the termination of the firm's legal existence.
D) ​the temporary suspension of the firm's business.

Accepted Answer

When a partnership dissolves, its legal existence terminates. Therefore, the distribution of Equity Lending's assets by Duke results in the termination of the firm's legal existence.

Question 6

Olivia is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Olivia does not participate in, know about, or ratify, she would be liable for
A) ​none of the obligations.
B) ​all of the obligations, jointly and severally.
C) ​all of the obligations, jointly but not severally.
D) ​only the contractual obligations.

Accepted Answer

In a general partnership, partners are jointly and severally liable for all partnership obligations unless otherwise agreed upon. This means that Olivia would be liable for all obligations, even if she was not aware of them, did not participate in them, or did not agree to them.

Question 7

Craig, Donna, and Eve do business as Fast-Track Career Consultants. Eve's relationship to Fast-Track ends, but the firm continues to do business. This is
A) ​dissociation.
B) ​dissolution.
C) ​most likely illegal.
D) ​unethical.

Accepted Answer

When a partner's relationship to a partnership ends, it is known as dissociation. Dissolution refers to the official termination of a partnership, which has not occurred in this scenario. It is not necessarily illegal or unethical for the firm to continue doing business without Eve, as long as they follow the guidelines set forth in their partnership agreement and any applicable laws.

Question 8

Sara and Terry agree while talking on the phone to form a partnership to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must
A) ​be filed in the appropriate state office.
B) ​be in writing.
C) ​be signed by a notary public.
D) ​not involve a third party.

Accepted Answer

Under the Statute of Frauds, agreements related to real estate must be in writing to be enforceable. Filing in a state office or involving a notary public are not necessary requirements, and involving a third party is unrelated to the statute of frauds.

Question 9

Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is
A) ​express, but not implied.
B) ​implied, but not express.
C) ​oral, written, or implied by conduct.
D) ​written, but not oral or implied.

Accepted Answer

A partnership can be established through an oral agreement, a written agreement, or by conduct that implies a partnership. Therefore, the best choice is C.

Question 10

Rosa is a partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is
A) ​not liable.
B) ​only liable to the amount of her capital contribution.
C) ​only liable in proportion to the number of partners in the firm.
D) ​personally liable to the full extent.

Accepted Answer

In a general partnership, each partner is personally liable for the debts of the business to the full extent of their personal assets, not just to the amount of their investment in the partnership. This means Rosa would be personally liable for the full extent of the debt incurred by Silver Dragon for the new dining tables and chairs.

Question 11

Fact Pattern 3-3
Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 3-3.Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation results in
A) ​nothing with respect to Cornell or Equity Lending.
B) ​the automatic termination of Equity Lending's legal existence.
C) ​Cornell's liability for all of Equity Lending's debts.
D) ​Cornell's wrongful dissociation and liability for any damages.

Accepted Answer

Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation is a breach of the partnership agreement. This breaches Cornell's duty of loyalty and can result in wrongful dissociation. As a result, Cornell is liable for any damages caused by this dissociation. Equity Lending can continue to exist unless the partnership agreement provides for automatic termination in the event of such a breach.

Question 12

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is
A) ​entitled to compensation in proportion to her effect on the business.
B) ​entitled to compensation in proportion to her effort.
C) ​entitled to compensation in proportion to her capital contribution.
D) ​not entitled to compensation.

Accepted Answer

In a partnership, unless the partnership agreement specifies otherwise, partners are not entitled to compensation for participating in the management of the business. They share in the profits and losses according to their partnership agreement.

Question 13

Emma is one of three partners in Fast Work, a commercial janitorial service. With respect to her interest in the firm, when she dies, her heirs are most likely entitled to
A) ​nothing.
B) ​a payout of her capital contribution without more.
C) ​the buyout price paid by the firm for the interest.
D) ​one-third of the value of the interest.

Accepted Answer

In a partnership, the interest of a deceased partner passes to their heirs. The heirs are entitled to receive the buyout price paid by the firm for the deceased partner's interest. This is typically determined by the partnership agreement or by valuing the interest based on the fair market value of the business. Therefore, choice C is the correct answer.

Question 14

Fact Pattern 3-3
Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 3-3.Bryn, Cornell, and Duke decide to admit Giselle as a new partner in Equity Lending. Giselle's liability for partnership debts incurred before her admission is
A) ​limited to her capital contribution to the firm.
B) ​limited to her personal assets.
C) ​nothing.
D) ​unlimited.

Accepted Answer

Giselle's liability for partnership debts incurred before her admission is limited to her capital contribution to the firm, as she is not yet a partner at that time.

Question 15

Beth and Connie do business as Diamond Investments. In acting on the firm's behalf, Beth makes an honest error in overestimating the value of a particular stock purchase. To her firm, Beth is
A) ​liable for breach of the duty of care.
B) ​liable for breach of the duty of accounting.
C) ​liable for breach of the duty of loyalty.
D) ​not liable.

Accepted Answer

Beth made an honest error in estimating the value of a particular stock purchase, which means it was not a deliberate or intentional act. Therefore, she is not liable for breach of duty.

Question 16

Ed, a partner in Farm Equipment Sales, applies for a loan with Growers Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Ed is not authorized to take out the loan. Liability in the event of default will be imposed on
A) ​none of the choices.
B) ​Ed.
C) ​Farm Equipment.
D) ​Growers Bank.

Accepted Answer

Since Ed acted without the authorization of the other partners and the bank was aware of this lack of authorization, Ed would be personally liable for the loan in the event of default. The liability does not extend to Farm Equipment or Growers Bank under these circumstances.

Question 17

Fact Pattern 3-2
Kristin and Lindsey are partners in Mobile Devise, an online marketing firm.
-Refer to Fact Pattern 3-2.Kristin signs a contract with Nature's Best Chocolate, a candy maker, apparently on Mobile's behalf. The contract is binding on
A) ​Kristin, Lindsey, and Mobile.
B) ​Kristin only.
C) ​Mobile only.
D) ​Nature's Best only.

Accepted Answer

As partners in a firm, Kristin and Lindsey are both bound by contracts signed by either partner on behalf of the firm, making the contract binding on Kristin, Lindsey, and Mobile Devise.

Question 18

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records
A) ​in their entirety.
B) ​only as the firm's management permits.
C) ​only for a reasonable purpose.
D) ​only in relation to Chet's capital contribution.

Accepted Answer

Partners in a partnership have the right to inspect the books and records of the partnership in their entirety. This right is fundamental to ensuring that partners can monitor the financial health and operations of the business, make informed decisions, and protect their investments.

Question 19

Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf in a deal with Village Mall, Nora takes advantage of an opportunity to make a secret profit on her own behalf. To her firm, Nora is liable for
A) ​breach of the duty of care.
B) ​breach of contract.
C) ​breach of the duty of loyalty.
D) ​nothing.

Accepted Answer

Nora has breached her duty of loyalty to the partnership by taking a secret profit for herself. She owes a fiduciary duty to her partnership, which requires her to act in the partnership's best interest and not to take advantage of business opportunities for her own personal gain without the knowledge and consent of the other partners. Nora's actions were a deliberate breach of this duty and would make her liable to the partnership for any losses resulting from her actions.

Question 20

Fact Pattern 3-2
Kristin and Lindsey are partners in Mobile Devise, an online marketing firm.
-Refer to Fact Pattern 3-2.Lindsey dissociates from Mobile. Kristin signs a contract with Organic Olives, a food seller, apparently on Mobile's behalf. Organic Olives does not know of Lindsey's dissociation. The contract is binding on
A) ​Kristin, Lindsey, and Mobile.
B) ​Kristin only.
C) ​Mobile only.
D) ​Organic Olives only.

Accepted Answer

The contract is binding on Kristin, Lindsey, and Mobile because Organic Olives was not aware of Lindsey's dissociation, and thus, the partnership is still liable for contracts made by a partner within the scope of the partnership's business.

Quiz 3: All Forms of Partnerships

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding

Selections, a general partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions

Brad and Carol are partners in Doctors for Children, a medical clinic. Brad's dissociation from the firm results in

Kim and Lyle are partners in K&L Sales, which exports technical equipment. If Congress declares that the equipment can no longer be exported, K&L

Olivia is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Olivia does not participate in, know about, or ratify, she would be liable for

Craig, Donna, and Eve do business as Fast-Track Career Consultants. Eve's relationship to Fast-Track ends, but the firm continues to do business. This is

Sara and Terry agree while talking on the phone to form a partnership to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must

Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is

Rosa is a partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is

Emma is one of three partners in Fast Work, a commercial janitorial service. With respect to her interest in the firm, when she dies, her heirs are most likely entitled to

Beth and Connie do business as Diamond Investments. In acting on the firm's behalf, Beth makes an honest error in overestimating the value of a particular stock purchase. To her firm, Beth is

Ed, a partner in Farm Equipment Sales, applies for a loan with Growers Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Ed is not authorized to take out the loan. Liability in the event of default will be imposed on

Fact Pattern 3-2 Kristin and Lindsey are partners in Mobile Devise, an online marketing firm. -Refer to Fact Pattern 3-2.Kristin signs a contract with Nature's Best Chocolate, a candy maker, apparently on Mobile's behalf. The contract is binding on

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records

Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf in a deal with Village Mall, Nora takes advantage of an opportunity to make a secret profit on her own behalf. To her firm, Nora is liable for