09. Sole traders and partnerships.

Question 1

T/F: when a partnership is dissolved, any partner (whatever their share of profits) can insist on the partnership assets being realised and any surplus being distributed (after payment of debts) to the partners.

Answer 1

TRUE

Question 2

T/F: In the event of a capital deficiency, the remaining partners of the firm will bear the loss equally in the absence of an express agreement to the contrary.

Answer 2

FALSE

Remaining partners share a capital deficiency in proportion to their original capital contribution.

Question 3

Money which a partner owes to the firm but cannot pay back.

Answer 3

Capital deficiency.

Question 4

Capital deficiency.

Answer 4

Money which a partner owes to the firm but cannot pay back.

Question 5

Remaining partners share a capital deficiency …

Answer 5

in proportion to their original capital contribution.

Question 6

T/F: The Partnership Act (1890) provides that all partners are entitled to remuneration for carrying out their firm’s business.

Answer 6

FALSE

s.24 states the contrary

Question 7

T/F: The Partnership Act (1890) provides that no partner is entitled to remuneration for carrying out their firm’s business.

Answer 7

TRUE

Question 8

T/F: The Partnership Act (1890) provides that all partners are entitled to 5% interest per annum on ALL capital that they have contributed to the firm.

Answer 8

FALSE

only advances beyond the amount originally agreed are eligible.

Question 9

T/F: The Partnership Act (1890) provides that the admittance of new partners requires the unanimous consent of all existing partners.

Answer 9

TRUE

Question 10

The Partnership Act (1890) provides that the admittance of new partners requires …

Answer 10

the unanimous consent of all existing partners.

Question 11

T/F: The Partnership Act (1890) provides that a majority of partners must consent to any decision to change the nature of the partnership’s business.

Answer 11

FALSE

s. 24 provides that unanimous consent is required.

Question 12

The Partnership Act (1890) provides that any change in the nature of the partnership business requires …

Answer 12

the unanimous consent of all existing partners.

Question 13

T/F: The Limited Partnership Act (1907) applies to ordinary partnerships.

Answer 13

FALSE

these are governed by the Partnership Act (1890).

Question 14

T/F: A partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership.

Answer 14

TRUE

although the ‘without the consent’ bit is important.

Question 15

A partner must account to the firm for any benefit derived by him … of the other partners from any transaction concerning the partnership.

Answer 15

without the consent

Question 16

A partner receiving commission from a supplier …

Answer 16

must make account to the firm.

Question 17

T/F: A firm, and the other partners, are bound by the acts of a partner acting within the usual authority of a partner.

Answer 17

TRUE

only if a third party knew that the partner did not have authority will the firm not be bound.

Question 18

T/F: the actions of a partner in the ordinary course of business of the firm bind the firm and the other partners.

Answer 18

TRUE

unless they have no authority AND the person with whom they are dealing either knows this OR does not know or believe them to be a partner.

Question 19

The actions of a partner in the ordinary course of business of the firm …

Answer 19

bind the firm and the other partners.

Question 20

The only situation in which the acts of a ‘partner’ do NOT bind the firm and the other partners despite them being in the ordinary course of business of the firm is …

Answer 20

-the partner had no authority

-the third party knew this OR did not know or believe them to be a partner

Question 21

T/F: A partner is liable on a contract entered into by the firm before he became a partner.

Answer 21

FALSE

Question 22

T/F: An ordinary partnership may only be dissolved by the unanimous consent of all of its partners.

Answer 22

FALSE

-partnerships at will

-dissoloution on death, bankruptcy, e.t.c.

Question 23

T/F: If a partnership becomes insolvent bankruptcy proceedings can be brought against the firm and individual partners.

Answer 23

TRUE

Question 24

If a partnerhsip becomes insolvent bankruptcy proceedings can be brought against …

Answer 24

the firm and individual partners.

Question 25

T/F: A partnership can not be 'wound up.'

Answer 25

FALSE Part V of the Insolvency Act (1986) provides that a partnership may be wound up in the same way as an unregistered company.

Question 26

T/F: A partnership may grant security by way of floating charge over its assets and undertaking.

Answer 26

FALSE like an individual, a partnership may only grant fixed charge security.

Question 27

A sole trader or partnership may only grant security by way of ... charge.

Answer 27

fixed

Question 28

T/F: A partner may assign their partnership interest to another.

Answer 28

TRUE

Question 29

T/F: An assignee of a partner has the right to inspect books of account or become involved in management decisions.

Answer 29

FALSE

Question 30

The liability of a partner in an ordinary partnership is ...

Answer 30

unlimited.

Question 31

T/F: An LLP has a separate legal personality distinct from its members.

Answer 31

TRUE

Question 32

The members of an LLP are taxed ...

Answer 32

as individuals on their partnership profits.

Question 33

T/F: An LLP is chargeable to Corporation Tax.

Answer 33

FALSE its members are taxed as individuals on their partnership profits.

Question 34

T/F: An LLP must have a member whose liabliity is unlimited.

Answer 34

FALSE

Question 35

T/F: The names and addresses of the members of an LLP must be disclosed upon registration.

Answer 35

TRUE

Question 36

T/F: An LLP may choose any name it wishes.

Answer 36

FALSE its name must end with the words 'Limited Liability Partnership' or the letters LLP.

Question 37

T/F: An LLP must have a formal partnership agreement akin to the articles of association of a limited company.

Answer 37

FALSE

Question 38

If a partner pledges the credit of the firm for a purpose apparently not connected with the firm's ordinary course of buisiness ...

Answer 38

the firm is not bound, unless he was specifically authorised to do so. The individual partner is however liable.

Question 39

The exception to the authority of a partner to bind their firm under S7 of the PA (1890).

Answer 39

Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm's ordinary course of buisiness, the firm is not bound unless he is specifically authorised by the other partners.

Question 40

T/F: An LLP's partnership agrement may be used as its 'incorporation document' provided that it contains all the necessary information.

Answer 40

FALSE an LLP must be registered using either form LL IN01 or its electronic equivalent.

Question 41

T/F: An LLP must file confirmation statements.

Answer 41

TRUE

Question 42

T/F: Notwithstanding any partnership agreement, members of an LLP have the right to take part in the management of the partnership business.

Answer 42

TRUE

Question 43

T/F: Notwithstanding any partnership agreement, members of an LLP have the right to reasonable remuneration in respect of work done for the partnership business.

Answer 43

FALSE as with an ordinary partnership, there is no automatic right to remuneration.

Question 44

T/F: Notwithstanding any partnership agreement, a member can leave an LLP by giving reasonable notice to the other partners.

Answer 44

TRUE

Question 45

A change of membership of an LLP must be reported to the registrar within ...

Answer 45

14 days

Question 46

A member of an LLP is an agent of ...

Answer 46

the LLP only (not the other members as with an ordinary partnership)

Question 47

T/F: A member of an LLP is the agent of the LLP as well as its members.

Answer 47

FALSE a member is only the agent of the LLP, NOT the other members

Question 48

T/F: A member of an LLP can not bind the LLP without having actual express or implied authority.

Answer 48

FALSE a member may have ostensible authority

Question 49

The options available to an insolvent LLP are (broadly the same / significantly different) to those available to an insolvent Limited Company.

Answer 49

broadly the same

Question 50

The options available to an insolvent LLP are broadly the same to those available to an insolvent ...

Answer 50

Limited Company

Question 51

T/F: An insolvent LLP may enter a voluntary arrangement with creditors.

Answer 51

TRUE

Question 52

T/F: An insolvent LLP may enter administration.

Answer 52

TRUE

Question 53

T/F: An insolvent LLP may enter voluntary liquidation.

Answer 53

TRUE

Question 54

T/F: An insolvent LLP may enter compulsory liquidation.

Answer 54

TRUE

Question 55

Withdrawals from an LLP by members within ... may be clawed back if at the time they knew or had reasonable grounds to believe that the LLP was or would become insolvent.

Answer 55

2 years

Question 56

Withdrawals from an LLP by members within 2 years may be clawed back if at the time they knew or had reasonable grounds to believe that the LLP was or would become ...

Answer 56

insolvent

Question 57

T/F: A partner has a statutory right to share in the profits or losses of a firm in proportion to their original capital contribution.

Answer 57

FALSE the law provides that a partner 'shares equally' irrespective of capital contribution or the amount of work done.

Question 58

T/F: A partner has a statutory right of access to the partnership's books of account.

Answer 58

TRUE

Question 59

The Limited Liability Partnerships Act (2000) provides that ... or more persons that are associated for the purposes of carrying on a lawful business with a view to profit must have subscribed their names to an incorporation document.

Answer 59

two

Question 60

A Limited Liability Partnership's name must end with those words or the letters ...

Answer 60

LLP [or the Welsh Equivalent - NOT IN THE SAMPLE EXAM]

Question 61

T/F: A sole trader must obtain a license and register for VAT.

Answer 61

FALSE

Question 62

In a sole tradership all business profits accrue to ...

Answer 62

the sole trader.

Question 63

The only state organisation to which a sole trader must account is ...

Answer 63

HMRC

Question 64

The only legal reason a sole trader need prepare accounts is ...

Answer 64

to calculate their tax liability under Self Assessment.

Question 65

T/F: A sole trader's business is legally distinct from their personal wealth.

Answer 65

FALSE

Question 66

T/F: A partnership of four or more partners must have a designated secretary.

Answer 66

FALSE

Question 67

T/F: A single partner can, in the absence of any partnership agreement, block the admission of a new partner.

Answer 67

TRUE s.24 of the PA (1890) provides that 'no person may be introduced as a partner without the consent of all existing partners.'