Question 1

No formalities are required in order to establish a partnership.

Accepted Answer

Formation of a partnership requires no formalities and may be formed by default.A partnership is created automatically when two or more persons own a business together without selecting another form.

Question 2

If a partnership leases a building that belongs to one of the partners,the property is said to be owned by the partnership.

Accepted Answer

If the partnership is using a partner's building and the partners want the owning partner to retain ownership,it would be best to have a lease agreement between themselves and the partner stating that the partner owns the building;the monthly rent;and who is responsible for property taxes,maintenance,and improvements to the building.

Question 3

The general law governing general partnerships is primarily found in the Revised Uniform Partnership Act (RUPA).

Accepted Answer

The American common law of partnership has been largely replaced by statutory law.Every state has a statute on partnership law.The Revised Uniform Partnership Act (RUPA)of 1994,with the 1997 amendments,is a model partnership statute that is the product of the National Conference of Commissioners on Uniform State Laws.

Question 4

John is a partner of Aegon Services,a limited liability partnership firm.He committed fraud and embezzled $1 million from a client.The other partners would not be personally liable for John's malpractice.

Accepted Answer

A limited liability partnership is a partnership whose partners have elected limited liability status.Reacting to the large personal liability sometimes imposed on accountants and lawyers for the professional malpractice of their partners,Texas enacted in 1991 the first statute permitting the formation of limited liability partnerships (LLPs).An LLP is identical to a partnership except that an LLP partner has no liability for most LLP obligations;however,an LLP partner retains unlimited liability for his own wrongful acts,such as his malpractice liability to a client.

Question 5

A partnership is an income tax-paying entity for federal income tax purposes.

Accepted Answer

Like the sole proprietorship,the partnership is not a tax-paying entity for federal income tax purposes.

Question 6

A written agreement to the effect that the parties do not intend to form a partnership is not conclusive if their actions provide evidence of their intent to form a relationship that meets the RUPA partnership test.

Accepted Answer

A written agreement to the effect that the parties do not intend to form a partnership is not conclusive if their actions provide evidence of their intent to form a relationship that meets the RUPA partnership test.

Question 7

The decision on what form of business to make a startup business is important because it will affect the business owner's liability and control of the business.

Accepted Answer

One of the most important decisions made by a person beginning a business is choosing a form of business.This decision is important because the business owner's liability and control of the business vary greatly among the many forms of business.

Question 8

Under the doctrine of purported partners,a third party may hold liable persons who purport to be partners.

Accepted Answer

The third party may hold liable the persons who purported to be partners or consented to being represented as the partner of the actual or purported partnership.

Question 9

Generally,professional shareholders are personally liable for the obligations of the professional corporation.

Accepted Answer

While professional shareholders have no personal liability for the obligations of the professional corporation,such as a building lease,they retain unlimited liability to their clients for their professional malpractice.A professional will have no personal liability,however,for the malpractice of a fellow shareholder or associate.

Question 10

Individuals in a valid general partnership are not personally liable for the obligations of the business.

Accepted Answer

The individuals in a partnership assume personal liability for the obligations of the business.

Question 11

Ann and Susan want to enter into a partnership business of selling cars for a term of five years.They must prepare a partnership agreement in writing to be enforceable under the statute of frauds.

Accepted Answer

Although a partnership agreement is not required to form a partnership,it is highly desirable for the same reasons that written contracts are generally preferred.In addition,the statute of frauds requires a writing for a partnership having a term of a year or more.

Question 12

You can form a partnership with one individual.

Accepted Answer

A partnership is an association of two or more persons and is voluntary and consensual for the purposes of managing a business.

Question 13

A mining partner's interest is not freely transferable.

Accepted Answer

A mining partner's interest is freely transferable.The transferee becomes a partner with all the rights of ownership and management,and the transferor loses all of his partnership rights.The other mining partners cannot object to the transfer,and their consent to a transfer is not required.

Question 14

Loans made by partners to a partnership are partnership capital.

Accepted Answer

Loans made by partners to a partnership are not partnership capital but,instead,are liabilities of the business.

Question 15

A limited partner in a limited partnership has the right to manage the limited partnership business.

Accepted Answer

Limited partners have no right to manage the business,but if they do manage,they nonetheless retain their limited liability.

Question 16

The sole proprietor has the right to deduct business losses on his individual tax return.

Accepted Answer

All of the income of a sole proprietorship is income to its owner and must be reported on the sole proprietor's individual federal income tax return.Likewise,any business losses are deductible without limit on the sole proprietor's individual tax return.

Question 17

The charging-order creditor is a lien creditor and is entitled to receive only the partner's share of the partnership distributions.

Accepted Answer

The charging-order creditor is a lien creditor and is entitled to receive only the partner's share of the partnership distributions.

Question 18

A sole proprietorship is a legal entity separate from its owner.

Accepted Answer

A sole proprietorship is not a legal entity.It cannot sue or be sued.Instead,creditors must sue the owner.The sole proprietor-in his own name-must sue those who harm the business.

Question 19

As an association,a partnership is a voluntary and consensual relationship.

Accepted Answer

As an association,a partnership is a voluntary and consensual relationship.It cannot be imposed on a person;a person must agree expressly or impliedly to have a person associate with her.

Question 20

The equity of a partnership is called partnership capital.

Accepted Answer

Partnership capital is the equity of a partnership business.

Quiz 37: Introduction to Forms of Business and Formation of Partnerships

No formalities are required in order to establish a partnership.

If a partnership leases a building that belongs to one of the partners,the property is said to be owned by the partnership.

The general law governing general partnerships is primarily found in the Revised Uniform Partnership Act (RUPA).

John is a partner of Aegon Services,a limited liability partnership firm.He committed fraud and embezzled $1 million from a client.The other partners would not be personally liable for John's malpractice.

A partnership is an income tax-paying entity for federal income tax purposes.

A written agreement to the effect that the parties do not intend to form a partnership is not conclusive if their actions provide evidence of their intent to form a relationship that meets the RUPA partnership test.

The decision on what form of business to make a startup business is important because it will affect the business owner's liability and control of the business.

Under the doctrine of purported partners,a third party may hold liable persons who purport to be partners.

Generally,professional shareholders are personally liable for the obligations of the professional corporation.

Individuals in a valid general partnership are not personally liable for the obligations of the business.

Ann and Susan want to enter into a partnership business of selling cars for a term of five years.They must prepare a partnership agreement in writing to be enforceable under the statute of frauds.

You can form a partnership with one individual.

A mining partner's interest is not freely transferable.

Loans made by partners to a partnership are partnership capital.

A limited partner in a limited partnership has the right to manage the limited partnership business.

The sole proprietor has the right to deduct business losses on his individual tax return.

The charging-order creditor is a lien creditor and is entitled to receive only the partner's share of the partnership distributions.

A sole proprietorship is a legal entity separate from its owner.

As an association,a partnership is a voluntary and consensual relationship.

The equity of a partnership is called partnership capital.