Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 511:

  Rivers and Lee want to form a partnership. For the partnership agreement to be enforceable, it must be in writing if:

  A. Rivers and Lee reside in different states.

  B. The agreement cannot be completed within one year from the date on which it will be entered into.

  C. Either Rivers or Lee is to contribute more than $500 in capital.

  D. The partnership intends to buy and sell real estate.

  Correct Answer: B

  Choice "b" is correct. A transaction which cannot be completed within a year must be in writing to be

  enforceable.

  Choice "a" is incorrect. Residence of the prospective partners is not relevant.

  Choice "c" is incorrect. The statute of frauds $500 threshold applies to the sale of goods only.

  Choice "d" is incorrect. Transactions in land are within the statute of frauds, but the possibility that a

  partnership may engage in a real estate transaction is not a transaction in land.

• Question 512:

  Heather, Erika, and Shelby are members in HES LLC. Heather works 40 hours per week and Erika and Shelby work 20 hours per week. Heather contributed $30,000 to the LLC and Erika and Shelby contributed $60,000 each. Erika and Shelby have each originated 45% of the LLC's business and Heather has originated the other 10%. If HES were a general partnership, who controls management?

  A. Heather, because she works the most.

  B. Erika and Shelby equally because they contributed the most.

  C. Heather, Erika, and Shelby equally because of state law.

  D. Erika and Shelby, because they originate most of the work.

  Correct Answer: C

  Choice "c" is correct.

  Rule: Absent an agreement to the contrary, partners have equal management authority.

  Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 513:

  Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a

  breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment

  against both Venture and Eller.

  Trent will generally be able to collect the judgment from:

  A. Partnership assets only.

  B. The personal assets of Eller, Fort, and Owens only.

  C. Eller's personal assets only after partnership assets are exhausted.

  D. Eller's personal assets only.

  Correct Answer: C

  Choice "c" is correct. When a judgment is obtained against both a partnership and an individual general partner, the plaintiff must proceed against the partnership assets first and then the assets of any individual general partner. The partnership assets must be exhausted before any general partner's individual assets can be attached. Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 514:

  On dissolution of a general partnership, distributions will be made on account of:

  I. Partners' capital accounts.

  II. Amounts owed partners with respect to profits.

  III. Amounts owed partners for loans to the partnership.

  In the following order:

  A. III, I, and II.

  B. I, II, and III.

  C. II, III, and I.

  D. III, II, and I.

  Correct Answer: A

  Choice "a" is correct.

  Rule: On dissolution of a general partnership the "order of distribution" would be as follows:

  III.

  General partner loans.

  I.

  Partners' capital accounts.

  II. General partners' profits.

  Choices "b", "c", and "d" are incorrect, per the above rule.

• Question 515:

  Which of the following is not necessary to create an express partnership?

  A. Execution of a written partnership agreement.

  B. Agreement to share ownership of the partnership.

  C. Intention to conduct a business for profit.

  D. Intention to create a relationship recognized as a partnership.

  Correct Answer: A

  Choice "a" is correct. A written partnership agreement, while certainly desirable, is not usually necessary to form a valid partnership; partnership agreements are not normally subject to the statute of frauds. Choice "b" is incorrect. A partnership is an association of two or more persons who agree to carry on as co-owners of a business for profit. Thus, an agreement to share ownership of the partnership is a requirement for creating an express partnership. Choice "c" is incorrect. A partnership is an association of two or more persons who agree to carry on as co-owners of a business for profit. Thus, an intent to carry on a business for a profit is a requirement for creating an express partnership. Choice "d" is incorrect. A partnership is an association of two or more persons who agree to carry on as co-owners of a business for profit. The intent to create a business relationship recognized as a partnership is a requirement for creating an express partnership.

• Question 516:

  In a general partnership, the authorization of all partners is required for an individual partner to bind the partnership in a business transaction to:

  A. Purchase inventory.

  B. Hire employees.

  C. Sell goodwill.

  D. Sign advertising contracts.

  Correct Answer: C

  Choice "c" is correct. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. No such authority exists, however, for transactions outside the regular scope of business. The sale of a business's goodwill is extraordinary and is outside the ordinary scope of business. Thus, a partner must get authorization from all other partners to make the sale. Choice "a" is incorrect. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. Purchasing inventory is within the regular scope of business, so a partner need not get permission from the other partners to bind the partnership. Choice "b" is incorrect. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. Hiring employees is within the regular scope of a business, so a partner need not get permission from the other partners to bind the partnership. Choice "d" is incorrect. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. Entering into advertising contracts is within the regular course of business, and so a partner need not get permission from the other partners to bind the partnership.

• Question 517:

  Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves and Gage sought to enforce the contract. Gage will:

  A. Lose, because Locke's action was not authorized by the partnership agreement.

  B. Lose, because Locke was not an agent of the partnership.

  C. Win, because Locke had express authority to bind the partnership.

  D. Win, because Locke had apparent authority to bind the partnership.

  Correct Answer: D

  Choice "d" is correct. Every partner is an agent of the partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership. It would be usual for a partner in a kitchen equipment business to have authority to purchase stoves. Thus, Gage will win because of Locke's apparent authority. Choice "a" is incorrect. Every partner is an agent for his partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership. Choice "b" is incorrect. Every partner is an agent of the partnership. Choice "c" is incorrect. Locke did not have express authority to purchase the stoves. The facts state that Locke was not authorized to purchase the stoves and thus lacked express authority.

• Question 518:

  Which of the following requirements must be met to have a valid partnership exist?

  I. Co-ownership of all property used in a business.

  II.

  Co-ownership of a business for profit.

  A.

  I only.

  B.

  II only.

  C.

  Both I and II.

  D.

  Neither I nor II.

  Correct Answer: B

  Choice "b" is correct.

  Rule: A partnership is defined as an association of two or more persons who agree to carry on as

  coowners a business for profit. Thus, II is necessary. However, there is no requirement that all property

  used in the business be co-owned; it may be owned by individual partners. Thus I is not necessary.

  Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 519:

  The partners of College Assoc., a general partnership, decided to dissolve the partnership and agreed that none of the partners would continue to use the partnership name. Under the Revised Uniform Partnership Act, which of the following events will occur on dissolution of the partnership?

  

  A. Option A

  B. Option B

  C. Option C D. Option D

  Correct Answer: C

  Choice "c" is correct. "No - Yes."

  Rule: Upon the dissolution of the partnership, each of the partners continues to have liability for partnership

  debts. Upon dissolution of the partnership each of the partners will continue to have apparent authority.

  The apparent authority of a partner can only be negated upon proper notice to third parties.

  Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 520:

  Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership. Park wishes to dissociate from the partnership. Which of the following statements is correct?

  A. Park may dissociate from the partnership at any time.

  B. Unless Graham consents to the dissociation, Park must apply to a court and obtain a decree ordering the dissociation.

  C. Park may not dissociate from the partnership unless Graham consents.

  D. Park may dissociate from the partnership only after notice of the proposed dissolution is given to all partnership creditors.

  Correct Answer: A

  Choice "a" is correct. Because the agreement is silent as to duration, it is a partnership at will. A partner may dissociate from a partnership at will at any time. Choice "b" is incorrect. Because the agreement is silent as to duration, it is a partnership at will. A partner may dissociate from a partnership at will at any time. No court order is required. Choice "c" is incorrect. Partnerships are consensual relationships, so any partner has the power to dissociate at any time; he or she need not obtain the consent of the other partners (though absent consent, the partner will be liable for damages if the dissociation is wrongful). Choice "d" is incorrect. There is no requirement of giving partnership creditors a formal notice of intent to dissociate, but it is a good idea to do so to avoid liability on future partnership obligations.