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Test Bank for Business Law Texts and Cases 14th by clarkson miller
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1. Unlike most agents, each partner in a partnership has an ownership interest in the business.
  a. True
  b. False
ANSWER:  True

2. The intent to associate is irrelevant in terms of the elements of a partnership.

  a. True
  b. False
ANSWER:  False

3. Most states treat a partnership as an aggregate for most purposes.

  a. True
  b. False
ANSWER:  False

4. A majority of the states treat a partnership as an entity for most purposes.
  a. True
  b. False
ANSWER:  True

5. A sharing of profits from a business creates a presumption that a partnership exists.
  a. True
  b. False
ANSWER:  True

6. A partner’s profit from a partnership is taxed as income to the firm.

  a. True
  b. False
ANSWER:  False

7. A partnership is a pass-through entity and a taxpaying entity.

  a. True
  b. False
ANSWER:  False

8. If no fixed duration of the partnership is specified, the partnership is a partnership at will, which means that it cannot be
dissolved.
  a. True
  b. False
ANSWER:  False

27. In winding up a general partnership, creditors are paid before partners receive their capital contributions.
  a. True
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  b. False
ANSWER:  True

28. A limited liability partnership must be formed in compliance with state statutes.
  a. True
  b. False
ANSWER:  True

29. Generally, each state limits the liability of partners in a limited liability partnership in some way.
  a. True
  b. False
ANSWER:  True

30. In a limited partnership, every partner has full responsibility for the partnership and for all its debts.
  a. True
  b. False
ANSWER:  False

31. In a limited partnership, limited partners do not have the same rights as general partners to participate in management.
  a. True
  b. False
ANSWER:  True

32. Some states have passed laws prohibiting the withdrawal of limited partners from a limited partnership.
  a. True
  b. False
ANSWER:  True

33. In a limited partnership, a general partner’s dissociation from the firm normally will lead to dissolution unless all
partners agree to continue the business.
  a. True
  b. False
ANSWER:  True

34. A limited partnership cannot be dissolved by court decree.

  a. True
  b. False
ANSWER:  False

35. The death of a limited partner dissolves a limited partnership.

  a. True
  b. False
ANSWER:  False

Multiple Choice

36. Luke and Maya form Northeast Air Express, a general partnership. The essential elements of this partnership do not
include
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  a. a sharing of profits and losses.
  b. a joint ownership of the business.
  c. an equal right to management in the business.
  d. goodwill.
ANSWER:  d

37. Gwen and Hugo do business as Gwen & Hugo Civil Engineers, a partnership. This firm is governed by the Uniform
Partnership Act
  a. in the absence of an express agreement.
  b. in the absence of an implied agreement.
  c. only under an express agreement.
  d. under all circumstances.
ANSWER:  a

38. Rita and Salvatore do business as Tech Fixers, a partnership. In most states, for the purposes of collecting judgments
and having accounting performed, this firm would be treated as
  a. an aggregate of individuals.
  b. a person.
  c. an entity.
  d. a non-entity.
ANSWER:  c

Fact Pattern 3-1

Ann starts up Bowls Bistro to serve and sell soups and salads. Ann leases space in an office building owned by Carly. The
lease requires a base rent of $1,250, plus 10 percent of Bowls Bistro’s profits, each month. The term is two years. Ann
hires Demi to take and fill customers’ orders at an hourly wage of $15.00, plus tips.
39. Refer to Fact Pattern 3-1. Ann and Carly are
  a. not partners, because Carly does not have an ownership interest or management rights in Bowls
Bistro.
  b. not partners, because the lease includes “base rent.”
  c. not partners, because the rent includes only 10 percent of the profits.
  d. partners in a partnership for two years.
ANSWER:  a

40. Refer to Fact Pattern 3-1. Ann and Demi are

  a. not partners, because Demi does not have an ownership interest or management rights in Bowls
Bistro.
  b. not partners, because the pay includes an hourly wage.
  c. not partners, because the pay includes only 10 percent of the profits.
  d. partners in a partnership.
ANSWER:  a

41. 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.
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  d. without more.
ANSWER:  d

42. 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.
ANSWER:  c

43. 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.
ANSWER:  b

44. 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.
ANSWER:  a

45. 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.
ANSWER:  d

46. 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.
ANSWER:  a

47. 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.
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  c. only liable in proportion to the number of partners in the firm.
  d. personally liable to the full extent.
ANSWER:  d

48. 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.
ANSWER:  d

Fact Pattern 3-2

Kristin and Lindsey are partners in Mobile Devise, an online marketing firm.
49. 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.
ANSWER:  a

50. 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.
ANSWER:  a

51. 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.
ANSWER:  b

52. 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.
ANSWER:  c
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53. 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.
ANSWER:  b

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.
54. 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.
ANSWER:  a

55. 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.
ANSWER:  d

56. 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.
ANSWER:  c

57. 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.
ANSWER:  a

58. 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.
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  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.
ANSWER:  b

59. 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.
ANSWER:  c

60. 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.
ANSWER:  c

61. Colin, Debby, and Erin agree to be partners in Fajita Pizza, splitting the profits equally. Colin contributes 65 percent
of the capital. When Fajita Pizza 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. Colin because he contributed most of the capital.
  d. Debby and Erin because they contributed the least of the capital.
ANSWER:  b

62. Nell is considering forms of business organization for Optic Center, a medical eye clinic. An advantage of a limited
liability partnership is that, depending on the applicable state statute, partners can avoid personal liability for
  a. their own wrongful acts.
  b. any partnership obligation.
  c. their own and other partners’ wrongful acts.
  d. none of the choices.
ANSWER:  b

63. Smith & Jones, Accountants, is a limited liability partnership (LLP). The major features of an LLP are that it limits the
personal liability of the partners and
  a. it allows the partnership to continue as a pass-through tax
entity.
  b. LLP statutes do not vary from state to state.
  c. it can only do business in the state in which it was formed.
  d. only a few states have enacted LLP statutes.
ANSWER:  a

64. Roma and Swain are partners in Roma & Swain Attorneys, LLP, a limited liability partnership. Roma supervises their
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firm’s associate Taylor, who negligently fails to appear in court on behalf of Umberto, a client. Liability to Umberto rests
only with
  a. Roma and Taylor.
  b. Roma.
  c. Taylor.
  d. Roma and Swain.
ANSWER:  a

65. Delany and Efron want to form a limited partnership to do general business bookkeeping with an emphasis on tax
accounting. In most states, a limited partnership will be created when Delaney and Efron
  a. file a certificate of limited
partnership.
  b. execute a partnership agreement.
  c. accept their first client.
  d. make their capital contributions.
ANSWER:  a

66. Brent and Char are limited partners in Dental Center, a limited partnership. In terms of the firm’s books and
information regarding partnership business, Brent and Char are entitled to
  a. access in proportion to their participation in management of the
firm.
  b. access to the parts that directly relate to their capital contributions.
  c. no access.
  d. complete access.
ANSWER:  d

67. Darin is a limited partner in Eco Baits, a pest control service organized as a limited partnership, which cannot pay its
debts. Darin is 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 to the firm.
  d. to the full extent.
ANSWER:  c

68. Orlando is a limited partner in Port of Call Exports, a limited partnership. By participating in the firm’s management,
Orlando is liable for its obligations
  a. in proportion to the number of partners in the firm.
  b. to no extent.
  c. to the extent of his capital contribution to the firm.
  d. to the full extent.
ANSWER:  d

69. Cherry Creek Development, LP, is a limited partnership that invests in residential real estate projects. Its limited
partners include more than 150 sophisticated investors and investment professionals. A Cherry Creek limited partner loses
his or her limited liability if he or she
  a. participates in the firm’s management.
  b. does not participate in the firm’s management.

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  c. invests in a project that Cherry Creek has declined.
  d. votes to sell or dissolve the firm.
ANSWER:  a

70. Gas, LP, is a limited partnership to which its partners have contributed capital. Gas’s creditors include Piping, Inc. On
Gas’s dissolution, its assets will be distributed to pay
  a. the partners and Piping proportionately.
  b. the partners before Piping.
  c. Piping before the partners.
  d. neither Piping nor the partners.
ANSWER:  c

Essay

71. Sebastian was the manager of Thai Bistro, a restaurant specializing in Southeast Asian foods. Sebastian opened a bank
account in Thai Bistro’s name, signing the account signature card as “owner.” Umeko, who was often at Thai Bistro and
had free access to its office, told others that she was “an owner” and “a partner.” She also opened a bank account in Thai
Bistro’s name, and signed the account signature card as “owner.” Sebastian told Vijay, the owner of Wong Noodles, Inc.,
that Umeko was a member of a partnership that owned Thai Bistro. On this basis, Wong Noodles delivered its goods to
Thai Bistro on credit. In fact, Thai Bistro was owned by a corporation. When the unpaid account totaled more than
$10,000, Wong Noodles filed a suit against Umeko to collect. On what basis might Umeko be liable for the debt?
ANSWER:  The theory under which Umeko would most likely be liable for Thai Bistro’s debt to Wong Noodles is
partnership by estoppel.
The first requirement of this theory is a representation, by a nonpartner or by another with the nonpartner’s
consent, that the nonpartner is a partner.  The second requirement is reliance on that representation.
In this case, Wong Noodles could prove both elements. Both Sebastian and Umeko made representations with
respect to Umeko’s status in relation to Thai Bistro—they both signed bank cards as “owner,” Umeko was
often at Thai Bistro and had free access to its office, Umeko told others that she was a “partner” in the
business, which is what Sebastian also told Vijay. As for the reliance element, Wong Noodles extended credit
to Thai Bistro only because Wong Noodles believed that Thai Bistro was owned by a partnership.

72. Fresco and Garcia form a partnership—HVAC Pros. Garcia’s capital contribution is $10,000, and Fresco’s is $15,000.
The partnership agreement provides that profits are to be shared, with 40 percent for Garcia and 60 percent for Fresco.
Later, Garcia makes a $10,000 loan to the partnership when it needs working capital. When the partnership is dissolved,
its assets are $50,000, and its debts are $8,000. How should the assets be distributed?
ANSWER:  On the dissolution and winding up of a partnership, the order of liability payment of the assets is as follows:
(a) debts owed to partnership creditors, including partners; and (b) capital contributions of partners and profits
as provided or, in the absence of an agreement, equally [UPA 807].
In this question, the partnership’s creditors would be paid $8,000 first, leaving a balance of $42,000 from the
$50,000.  Next, Garcia would be paid $10,000 for the loan, or advance, leaving $32,000. From this amount,
Garcia would receive $10,000 and Fresco $15,000 as payment for their capital contributions, leaving a balance
of $7,000. The $7,000 would be split as profits, with 40 percent going to Garcia ($2,800) and 60 percent to
Fresco ($4,200).

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