M5-Business Structures: Part 1

Question 1

A joint venture is formed for a single business undertaking such as building and designing freight containers to be sold specifically to one company. Each company coming together in this joint venture has its own business outside of this one endeavor. (true or false)

Answer 1

true

A joint venture is an association of persons engaged as co-owners in a single (special transaction) undertaking for profit. A joint venture is treated as a partnership for most important legal respects.

A joint venture must have a profit motive an d may include more than two persons.

Question 2

A general partnership is like a joint venture, but it contemplates a broader relationship rather than one limited to a single transaction or a related series of transactions. (true or false)

Answer 2

true

Question 3

A limited liability partnership is primarily designed for professionals who want to work as partners but with limited personal liability. (true or false)

Answer 3

true

Question 4

Members of an LLC are not personally liable for the LLC’s obligations. Moreover, an agent is not liable on a contract the agent enters into on behalf of a disclosed principal. (true or false)

Answer 4

true

Example
Here, the contract was entered into by Eller on behalf of Venture, an LLC, and Eller disclosed that he was acting only as an agent of Venture. Thus, Trent Corp. can collect from the LLC’s assets only.

Question 5

A limited partnership must have at least one general partner and one limited partner. (true or false)

Answer 5

true

Question 6

An operating agreement is an agreement between the members containing provisions relating to management, profit sharing, transferring interests, etc. and does not need to be filed with the state. (true or false)

Answer 6

true

The articles of Organization must be filed with the state.

Question 7

Absent an agreement otherwise, all members generally participate in management, and their voting strength is determined in proportion to ownership interest. This is calculated by comparing each member’s capital contribution to that of the other members. (true or false)

Answer 7

true

Question 8

A partner in an LLP is personally liable for tort liabilities arising from his own negligence and the negligence of his direct subordinates. He is NOT personally liable for the negligent actions committed by his _______.

Answer 8

partners

Question 9

The authority of partners is governed by agency law. Under agency law, a principal is not bound to the third party unless the agent had actual authority OR apparent authority. When the agent has no actual authority AND no apparent authority, the principal (in this case the partnership) will only be liable if it chooses to adopt the agreement (i.e., ratify). (true or false)

Answer 9

true

Question 10

The bankruptcy of a partner will result in the dissociation of a partner. (true or false)

Answer 10

true

Question 11

Upon the dissolution of a partnership, each of the partners continue 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. (true or false)

Answer 11

true

Question 12

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. (true or false)

Answer 12

true

Question 13

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. (true or false)

Answer 13

true

Question 14

When the partnership agreement is silent as to how losses will be shared, they are shared in the same manner as profits. (true or false)

Answer 14

true

Question 15

Absent an agreement to the contrary, if a member of an LLC dies, the LLC is dissolved unless the other members consent to continue. (true or false)

Answer 15

true

Question 16

When the partnership agreement is silent as to how profits are to be divided, they are divided equally. Note also that when the agreement is silent, losses are treated similar to profits, there is no reverse rule that profits are treated like losses. (true or false)

Answer 16

true

Question 17

The transfer of a member interest requires the consent of the other members. Members may not assign their interest without the other members’ consent. (true or false)

Answer 17

true

Question 18

The assignee of a partner’s interest in the partnership does not thereby become a partner absent the unanimous consent of the other partners. Thus, the assignee has no right to participate in the management of the partnership and has only a right to receive the assignor’s share of the partnership profits. (true or false)

Answer 18

true

Question 19

A limited partner has not management authority, rather he is a passive investor, like a corporate shareholder. (true or false)

Answer 19

true

Question 20

An LLP does not pay taxes on its earnings. Instead, the profits and losses flow through to the partners as in a general partnership. The LLP files an information tax return like that of a general partnership. The partners may agree to have the entity managed by one or more of the partners. A partner may be another entity. (true or false)

Answer 20

true

Question 21

The owners of a limited liability company are called _______.

Answer 21

members

Question 22

A transaction which cannot be completed within a year must be in writing to be enforceable. (true or false)

Answer 22

true

Question 23

When a partnership does not state the duration of the partnership, the partners may withdraw at any time. The partner need not obtain consent of the other partners or of the court. (true or false)

Answer 23

true

Question 24

Under the revised uniform limited partnership act a limited partner must not participate in management or he can lose his limited liability status. (true or false)

Answer 24

true