Question 1

Venture Capital, LP, is a limited partnership. Its limited partners include more than 150 sophisticated investors and investment professionals. A Venture limited partner loses his or her limited liability if he or she
A) acts as the firm's manager.
B) does not participate in the firm's management.
C) invests in Unified Fund, one of Venture's competitors.
D) votes on the firm's sale or dissolution.

Accepted Answer

According to the principle of limited liability, limited partners are not personally liable for the debts or obligations of the partnership. However, if a limited partner takes an active role in management, they may lose their limited liability protection and become personally liable for partnership debts and obligations. Therefore, if a Venture limited partner acts as the firm's manager, they would lose their limited liability protection. Choices B and C are incorrect because they do not involve management, and Choice D is incorrect because simply voting on the firm's sale or dissolution would not impact their limited liability protection.

Question 2

Mead, Nero, and Olen do business as Pipe & Plumbing Services. After Mead's relationship to the firm ends, Nero and Olen agree to discontinue the business. This is
A) dissociation.
B) dissolution.
C) gross negligence.
D) simple misconduct.

Accepted Answer

Dissolution refers to the termination of a partnership or corporation. In this case, after Mead's departure, Nero and Olen have decided to discontinue the business, which means that they are dissolving the partnership.

Question 3

International Exports, L.P., is a limited partnership, with $100,000 in declared but unpaid profits. International's creditors include Friendly Credit Corporation for $5,000 and Gwen, one of International's limited partners, also for $5,000. When Harry, one of International's general partners, decides to retire, the other general partners vote to liquidate and dissolve the firm. The limited partners, who are not asked their opinions, want International to continue in business and file a suit against the general partners to compel this result. Can the court order International to continue? If not, what is the priority of the distribution of International's assets on its dissolution?

Accepted Answer

The answer of International Exports, L.P., is a limited partnership,...

Question 4

Sally and Tom decide to go into business, selling discounted merchandise through their Web site "e-Buy." They sign a partnership agreement that requires Sally to contribute $12,000 and Tom to contribute $8,000 in capital to start the firm. The agreement also states that only Sally will have the authority to bind the partnership in deals with third parties, but the agreement says nothing about the management of the firm or a division of profits. Without Sally's knowledge, Tom tells United Computer Products, Inc., that he represents the firm and signs a contract with United to buy hard drives for resale on e-Buy. In the first year, e-Buy makes a profit of $50,000. What are the partners' rights with respect to the management of the firm? Is the partnership bound to the contract with United? Do the partners split the first year's profits? If so, how much is each entitled to?

Accepted Answer

The answer of Sally and Tom decide to go into...

Question 5

Connie, Drew, and Ellen are the general partners of Foreign Auto Repair, a limited partnership. Connie dies. The partnership can
A) continue only after a distribution of its assets.
B) continue only as a general partnership.
C) continue only if Drew and Ellen consent.
D) not continue because Connie's death dissolves the firm.

Accepted Answer

The answer of Connie, Drew, and Ellen are the general...

Question 6

Energy Unlimited, LP, is a limited partnership to which its partners, including Fink, have contributed capital. Energy's creditors include Graves Engineering, Inc. On Energy's dissolution, its assets will be distributed to pay
A) Fink and Graves proportionately.
B) Fink first.
C) Graves first.
D) neither Fink nor Graves.

Accepted Answer

On dissolution, creditors like Graves Engineering, Inc. have priority in receiving payment from the partnership's assets before any distribution is made to partners like Fink. Therefore, Graves would be paid first, and Fink would receive any remaining portion of the assets.

Question 7

Fern and Gray want to form a limited partnership to manage two restaurants: Café Latte and Deli Delite. In most states, a limited partnership will be created when
A) a certificate of limited partnership is filed.
B) a partnership agreement is executed.
C) the business for which the firm is formed actually begins.
D) the partners make their capital contributions.

Accepted Answer

A limited partnership is typically created when a certificate of limited partnership is filed with the appropriate state authority.

Question 8

Rick and Sandy are limited partners in Total Profit Enterprises, a limited partnership. To avoid personal liability for partnership obligations, they must not
A) acquire an interest in the firm.
B) contribute property to the firm.
C) engage in activities independent of the firm's business.
D) participate in the firm's management.

Accepted Answer

Limited partners in a limited partnership are not involved in the management of the partnership. If Rick and Sandy participate in management, they may lose their limited liability protection and become personally liable for partnership obligations. Therefore, they must not participate in the management of the firm.

Question 9

Jack and Kyra are partners in Law Firm, LLP, a limited liability partnership. Jack supervises Kyra, who negligently fails to appear in court on behalf of Milo, a client. Liability to Milo rests with
A) Jack and Kyra.
B) Jack only.
C) Kyra only.
D) neither Jack nor Kyra.

Accepted Answer

The answer of Jack and Kyra are partners in Law...

Question 10

Kelly, Lars, and Mona agree to be partners in Neighborhood Delivery Service (NDS), splitting the profits equally. Kelly contributes 67 percent of the capital. When NDS is dissolved, its liabilities are greater than its assets. The losses are paid by
A) all of the partners in proportion to their capital contributions.
B) all of the partners in proportion to their shares of the profits.
C) Kelly because she contributed most of the capital.
D) Lars and Mona because they contributed the least of the capital.

Accepted Answer

The answer of Kelly, Lars, and Mona agree to be...

Question 11

Newt is considering forms of business organization for Newton Design, an architectural firm. An advantage of a limited liability partnership is that partners can avoid personal liability for
A) their own wrongful acts.
B) only other partners' malpractice.
C) only partnership obligations that exceed capital contributions.
D) only partnership obligations that fall within capital contributions.

Accepted Answer

The answer of Newt is considering forms of business organization...

Question 12

Lucy is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lucy is personally liable for the debts
A) in proportion to the number of partners in the firm.
B) to no extent.
C) to the extent of her capital contribution.
D) to the full extent.

Accepted Answer

As a limited partner, Lucy is only personally liable for the debts to the extent of her capital contribution. This means that she is only liable for the amount of money she originally invested in the partnership and not for any additional debts or liabilities incurred by the partnership.

Quiz 27: All Forms of Partnership

Venture Capital, LP, is a limited partnership. Its limited partners include more than 150 sophisticated investors and investment professionals. A Venture limited partner loses his or her limited liability if he or she

Mead, Nero, and Olen do business as Pipe & Plumbing Services. After Mead's relationship to the firm ends, Nero and Olen agree to discontinue the business. This is

Connie, Drew, and Ellen are the general partners of Foreign Auto Repair, a limited partnership. Connie dies. The partnership can

Energy Unlimited, LP, is a limited partnership to which its partners, including Fink, have contributed capital. Energy's creditors include Graves Engineering, Inc. On Energy's dissolution, its assets will be distributed to pay

Fern and Gray want to form a limited partnership to manage two restaurants: Café Latte and Deli Delite. In most states, a limited partnership will be created when

Rick and Sandy are limited partners in Total Profit Enterprises, a limited partnership. To avoid personal liability for partnership obligations, they must not

Jack and Kyra are partners in Law Firm, LLP, a limited liability partnership. Jack supervises Kyra, who negligently fails to appear in court on behalf of Milo, a client. Liability to Milo rests with

Kelly, Lars, and Mona agree to be partners in Neighborhood Delivery Service (NDS) , splitting the profits equally. Kelly contributes 67 percent of the capital. When NDS is dissolved, its liabilities are greater than its assets. The losses are paid by

Newt is considering forms of business organization for Newton Design, an architectural firm. An advantage of a limited liability partnership is that partners can avoid personal liability for

Lucy is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lucy is personally liable for the debts