Business LAW - Second Practice QUIZ PDF

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BUSINESS LAW SECOND PRACTICE QUIZ For each of the following, please indicate whether the statement is TRUE (by marking "a") or FALSE (by marking "b"): 1. A partnership may be treated as a separate legal entity for certain purposes, such as lawsuits and tax returns. 2. Assume that Hal Jordan buys a green lantern using partnership funds even though he is the only member of the partnership who likes green lanterns. As a result, the green lantern will be deemed to be Hal's personal property upon dissolution of the partnership. 3. Assume that the partnership agreement made by Demi and Michael fails to specify how profits and losses are to be divided between them. Regardless of the shares of capital in the partnership, profits must be shared equally and losses must be shared in the same ratio as profits. 4. Herman, a partner in Munsters-R-Us, has decided to retire to Transylvania. His withdrawal from the business will force Lillie, Eddie and Grandpa, the remaining partners to dissolve the partnership. 5. If Herman drops dead, however, Lillie, Eddie and Grandpa can choose to continue the partnership. 6. By having a corporation serve as a general partner, it is possible to create a limited partnership in which no owner has personal liability for the debts of the business. For each of the following multiple choice examination questions, please select the one response (a, b, c or d) which best answers the question or issue presented. 7. Xerox Corp. sues ABC Ltd., a California limited partnership, naming Stevens, its general partner, and Sanders, one of its limited partners (Xerox erroneously thought Sanders was also a general partner). Sanders files a motion for summary judgment alleging he is exempt from liability as a limited partner. Xerox opposes the motion by producing several checks and contracts that were signed by Sanders on behalf of the business. Prior to receiving these documents Xerox had never talked to Sanders and was completely ignorant of his status with the business. The motion for summary judgment will be... a. Granted because Xerox had no knowledge that Sanders was helping manage the business and did not hold this belief when it entered into their contract with ABC Ltd. b. Granted because Sanders signing checks and contracts are usually not considered acts of management & control. c. Denied because Sanders has lost his limited liability by involving himself in the business, whether or not Xerox relied or had knowledge of this fact. d. Denied, because limited partners are always liable to contract creditors.

8. When a partnership dissolves and winds up, of the following who would be the last to receive distribution of partnership assets? a. The partners in repayment of capital. b. The partners in repayment of profits. c. The creditors of the partnership. d. The partners in repayment of loans. 9. Alexander, a partner in the Emperor's Alliance, a general partnership, wishes to withdraw from the partnership and sell his interest to Cleopatra. The remaining partners (Ceasar, Catherine and Napoleon) agree to admit Cleopatra as a partner. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more partners. As a result of Alexander's withdrawal and Cleopatra's admission, Cleopatra… a. Is personally liable for partnership liabilities arising before and after her admission as a partner. b. Has the right to participate in the management of the Emperor's Alliance. c. Acquired only the right to receive Alexander's share of partnership profits. d. Must contribute cash or property to the Emperor's Alliance in order to be admitted with the same rights as the other partners. For the following questions, please write your response in the space or spaces provided. 10. Name at three (3) situations that may be grounds for a judicial dissolution of a partnership: a. ___________________________________ b. ___________________________________ c. ____________________________________ 11. A creditor wishing to attach the partnership profits of a partner who has an individual debt to the creditor will usually obtain a _________________________ order. Although a partner’s attempted assignment of all of his or her ownership rights in a partnership might trigger its dissolution, a partner may assign his or her partnership _______________________ to a creditor without causing a dissolution. The creditor, however, will have no voting or management rights.

For the following, please write a brief essay addressing the issues raised by the question. 12. Charles has entered into a partnership with Eddie and Rodrigo to operate an aircraft parts manufacturing company. While Eddie and Rodrigo are out of town, Charles signs the following contracts, on behalf of the partnership: (A) a contract for a $ 15,000.00 loan from Bank of the West (B) a contract to purchase an adjoining piece of real estate to build a new parking lot for the company employees. Furthermore, Charles opens a new bank account for the business at Bank of Orr.

Assuming that Charles and the partnership breach their obligations under the two contracts and Charles makes some unauthorized withdrawals from the new bank account, please discuss whether or not the partners (Rodrigo and Eddie) and the partnership are likely to be liable to the third parties & the bank. Additionally, if Charles and Eddie go bankrupt, please discuss the extent of Charles' personal liability for these obligations.

ANSWERS TO PRACTICE QUIZ 1. a 2. b 3. a 4. a 5. b 6. a 7. a 8. b 9. b 10. Any three of the following: -

insanity incapacity sustained loss deadlock creditor assignee misconduct

11. charging; interest 12. The issue in this problem is whether Charles had the implied authority to enter into the various contracts on behalf of the partnership and thus bind the partnership & its partners. Loan from Bank of West: A partner has the implied authority to secure a loan on behalf of the partnership if it is a trading company (one involved in the sale of goods), because of the cash flow necessary to build inventory. Here the company is a trading company (aircraft parts) and Charles therefore would have the implied authority. The partnership and all of the

individual partners, including Charles would be personally liable for all debts, including Bank of West (partners and jointly & severally liable for all partnership debts). Purchase of Real Estate: Normally a partner does not have the implied authority to buy or sell land on behalf of the partnership unless it is a real estate business. Here we don't have a real estate business and the purchase requires the approval of the remaining partners. Therefore the partnership is not liable, but Charles, as the agent of an unauthorized contract, would be liable personally. Withdrawals from Bank of Orr: A partner has the implied authority to deposit or withdraw funds from partnership bank accounts and the partners would be liable to the bank. Charles would be liable to the bank, as a partner, and would be liable to reimburse the other partners for his breach of loyalty in removing funds from the bank for his own gain....