Question

Which of the following is subject to unlimited personal liability?

Multiple Choice

• Partners in a general partnership

• Limited partners in a limited partnership

• Corporate shareholders

• Members of LLCs

Jennifer, a limited partner in "Raingear to Go," was dissatisfied with the performance of the business. She began attending staff meetings, working in the store, and participating in the day-to-day operations. Which of the following statements is true?

Multiple Choice

• Jennifer's actions caused the limited partnership to become a corporation.

• Jennifer's actions have no relevance because it was agreed between both the general partners and other limited partners that she was classified as a limited partner.

• Jennifer's actions changed her status from a limited partner to a general partner.

• Jennifer's actions created increased liability for the other limited partners.

When a partnership is dissolved, and the partnership has been profitable, after all assets are sold, what is the order of distribution?

Multiple Choice

• All partnership outside creditors are paid; partners who loaned money are paid; any remaining proceeds from the sale of assets are distributed pro rata among the partners based on the net amounts in their capital accounts.

• Partners who loaned money are paid; all partnership outside creditors are paid; any remaining proceeds from the sale of assets are distributed pro rata among the partners based on the net amounts in their capital accounts.

• Proceeds from the sale of assets are used to pay partners any profit to which they are entitled; partners who loaned money are paid; partnership outside creditors are paid; and any other amounts are distributed pro rata among the partners based on the net amounts in their capital accounts.

• Proceeds from the sale of assets are used to pay partners any profit to which they are entitled; partnership outside creditors are paid; partners who loaned money are paid; and any other amounts are distributed among the partners on an equal basis.

The following are liable for all prior obligations of a continuing partnership:

Multiple Choice

• continuing partners.

• withdrawing partners (if released by novation).

• new partners.

• only partners who continue and who were also responsible for incurring the obligations at issue.

Mary eats at ABC Franchise Co., a fast food restaurant, and gets food poisoning. Once she recovers, she wants to sue. She discovers, however, that ABC Franchise Co., has very few assets and little money. She really wants to sue Big Franchise Co., the company that granted the franchise to ABC Franchise Co. Which of the following is true regarding her position in regard to Big Franchise Co.?

Multiple Choice

• Big Franchise Co. is automatically liable for the torts of the entity to whom it sold a franchise, so Mary merely needs to sue Big Franchise Co. along with ABC Franchise Co.

• Big Franchise Co. cannot be held liable for the torts of the entity to whom it sold a franchise, so Mary should abandon the idea of holding Big Franchise Co. liable.

• Mary may be able to establish liability on the part of Big Franchise Co. if she can show that because of the control exercised on the part of Big Franchise Co., ABC Franchise Co. was not an independent contractor.

• Mary may be able to establish strict liability on the part of Big Franchise Co. if she can show that many of the franchises sold by Big Franchise Co. had problems with food poisoning in regard to consumers.

If a partnership is established for a term of 20 years, which of the following is true regarding the authority of a partner to continue the business beyond that time?

Multiple Choice

• An individual partner has no right to continue the partnership, and there must be unanimous agreement of all partners in order for the partnership to continue.

• An individual partner has the right to continue the partnership if a minority of the partners agree to do so.

• An individual partner has the right to continue the partnership only if a majority of the partners agree to do so.

• Partnerships are perpetual entities, so an agreement establishing a term is disregarded in the law as superfluous, and it would continue past the term as a matter of law.

Generally, if a limited partnership failed to file the proper certificate, it would be treated as a:

Multiple Choice

• sole proprietorship.

• general partnership.

• de facto limited partnership.

• limited liability company.

Which of the following is false regarding the attributes of a limited liability company?

Multiple Choice

• All 50 states have statutes that permit businesses to operate limited liability companies.

• There are restrictions on the number of members a limited liability company may have.

• Members have limited liability unless the corporate veil is pierced.

• They require the filing of articles of organization with the secretary of state.

Which of the following statements is true concerning franchises?

Multiple Choice

• The term of the franchise contract must be at least 5 years.

• Under federal law, the franchise contract must contain an assurance of the right to renew.

• Federal and state governments regulate the franchise relationship.

• Franchising is limited to the continental U.S.

Which of the following is true regarding limited partnerships?

Multiple Choice

• Limited partners are generally liable for the debts of the partnership.

• Limited partners are fiduciaries.

• Limited partners have managerial power.

• Limited partner bankruptcy does not result in dissolution.

One advantage of the corporate form over that of a partnership is that:

Multiple Choice

• partnerships are usually less profitable.

• corporations can more easily hold property over long periods of time.

• corporations do not have to worry about legal compliance issues.

• partnerships are subject to double taxation.

The Revised Uniform Partnership Act (RUPA) gives every partner:

Multiple Choice

• implied authority to bind the partnership on contracts that are usually appropriate to that business.

• the right to use the partnership's property for personal business.

• the right to expel partners at will.

• the right to add more partners at will.

A freeze-out:

Multiple Choice

• occurs when majority shareholders are excluded from key management decisions.

• can be reversed in court.

• results in the minority shareholder having little or no influence in important corporate issues such as reduction or elimination of dividends or loss of employment.

• none of the above.

Which of the following is necessary to create a partnership?

Multiple Choice

• Drafting an express agreement.

• Filing notice with the Secretary of State.

• Intending to have a relationship that the law defines as a partnership.

• Filing income tax returns as a partnership.

Which of the following is true regarding making a choice as to the appropriate form of business organization?

Multiple Choice

• Once it is formed a partnership may later be changed to a corporate form of business.

• Factors generally point to a corporation as the best form of business.

• In starting a small business, financing a corporation will be easier than financing a partnership or an individual proprietorship.

• It is unlikely that there would be adverse tax consequences involved in liquidating a corporation.

The following form of business organization limits personal liability the most:

Multiple Choice

• Sole proprietorship.

• Limited sole partnership.

• Corporation.

• General partnership.

An S corporation may not have:

Multiple Choice

• more than 75 shareholders.

• more than 100 shareholders.

• more than 1,500 shareholders.

• more than 7,500 shareholders.

Answer 1

1) Partners in a general partnership - bacause Limited partner in LLP, LLC and Corporate shareholder have limited liability to the extent of any unpaid capital.

2) Jennifer's actions changed her status from a limited partner to a general partner.- because by being involved in day to day operations , she becomes a general partner and increases her liability.

3) All partnership outside creditors are paid; partners who loaned money are paid; any remaining proceeds from the sale of assets are distributed pro rata among the partners based on the net amounts in their capital accounts.- because the ranking order is based on subordinate principles.

4) only partners who continue and who were also responsible for incurring the obligations at issue.- because new partners are only liable to the extent of their contribution and withdrawing partners are absolved by novation.

5) Mary may be able to establish liability on the part of Big Franchise Co. if she can show that because of the control exercised on the part of Big Franchise Co., ABC Franchise Co. was not an independent contractor.- becasue Generally, where a franchisor does not exercise substantial or significant control over the day-to-day operations of its franchisee, and makes public notice of the independent contractor relationship, a court will not find the franchisor to be vicariously liable for its franchisee’s acts/omissions.

6) An individual partner has no right to continue the partnership, and there must be unanimous agreement of all partners in order for the partnership to continue. - because partnership was for specified time.

7) de facto limited partnership. -because there should be good faith to file the proper certificate.

8) There are restrictions on the number of members a limited liability company may have.- because unlimited members are allowed

9) Federal and state governments regulate the franchise relationship.- because it is true and all else are false.

10) Limited partners are fiduciaries.- because it is true and all else are false.

11) corporations can more easily hold property over long periods of time. -because control of mangement is not with a few partners, instead management is appointed by shareholders.

12) implied authority to bind the partnership on contracts that are usually appropriate to that business..- because it is true and all else are false.

13) results in the minority shareholder having little or no influence in important corporate issues such as reduction or elimination of dividends or loss of employment. - becasue it is true.

14) Intending to have a relationship that the law defines as a partnership. - because this requirement supreceedes all.

15) Once it is formed a partnership may later be changed to a corporate form of business. - as per the growth of business.

16) Corporation. - least liability

17) more than 100 shareholders.- 100 is the limit.