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Exam 37: Partnerships: Termination and Limited Partnerships

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Question 1

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"Fish Fiasco." Matt agreed to be a limited partner in Susie and Bill's business of importing tropical fish. Susie and Bill were general partners. Matt contributed $10,000 to the partnership as his capital contribution. The partnership made a profit of $30,000 the first year. Matt was paid nothing. When he inquired, Susie told him that a limited partner was only entitled to a share of profits as approved by the general partners and that perhaps things would be better the next year. The next year, however, importation was banned because of a fish disease, and the partnership lost money and owed debts of $60,000. At the end of the year, Susie and Bill asked Matt to contribute $20,000 to cover the debts. When Matt complained about the amount, Bill told him that he and Susie were being overly reasonable and that he was legally liable for an even larger percentage. In an attempt to keep the business afloat, Matt told Susie and Bill that they should consider suing a customer who had not paid a large account. Susie and Bill replied, however, that they were morally opposed to lawsuits and that they had the final say on litigation. -Which of the following is true regarding any responsibility of Matt to share in losses?

A) Matt assumed no liability for the partnership beyond the capital he invested.
B) Matt has a legal obligation to share equally in losses with the general partners.
C) Matt would be responsible for one-half of any losses with the two general partners having liability for the other half.
D) Matt has no liability for losses at all.
E) Matt has liability for losses only if the general partners are insolvent.

F) B) and C)
G) A) and D)

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Question 2

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If a partner dissolves a partnership in violation of the partnership agreement, the partner can be held liable for wrongful dissolution.

A) True
B) False

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Question 3

Multiple Choice

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Which of the following are the steps in order of the life cycle of a partnership?

Which of the following is an agreement stating that continuing partners can keep partnership property and carry on the partnership business?

If a partnership does not notify third parties of a dissolution, a partner can still have ______ authority to bind the partnership.

Which of the following is a type of partnership, if any, that does not specify the objective or duration of the partnership?

In the case of a limited partnership, if the partners do not correctly fill or do not file the certificate of limited partnership with the secretary of state, the limited partners will not receive limited liability.

Which of the following was the result in the case in the text, Jack A ) Kahn and Denise W. Kahn v Stewart Mesher and Lieselotte Mesher, the case in which it was claimed that in winding down a partnership, a defending partner wrongfully profited by failing to make appropriate disclosures to other partners regarding an offer to purchase property held by the partnership?

Which of the following is the term for the activity of completing unfinished partnership business, collecting and paying debts, collecting partnership assets, and taking inventory?

During the winding-up process, the partners must still fulfill their fiduciary duty to one another in the sense that they must disclose all information about the partnership assets.

To ensure that a dissolving partner does not create additional liability for the partnership, which of the following is true regarding notice to be provided to a third party that has provided credit to a partnership?

"Parent Involvement." Marcy and George, both artists, discussed forming a partnership to paint portraits. George's parents were interested in investing in the partnership, but they wanted to avoid any liability. George suggested forming a limited partnership. He told Marcy and his parents that they could do it very informally, that an oral agreement was sufficient, and that the parents would be protected from liability. Although George protested strongly on the basis that it was a waste of money, Marcy insisted that a certificate of limited partnership be filed with the secretary of state. After a few months, Marcy and George decided that they wanted to add a new partner, Betty, to the partnership as a general partner. Betty had some expertise in the portrait field but, unfortunately, she had also had some scrapes with local law enforcement. George's parents objected strenuously to the admission of Betty. Marcy and George took the position that the parents, as limited parents, had no say in the admission of a new partner. George's father, who had an interest in painting and was concerned that the partnership was not making very much money, decided to start coming to the partnership studio to manage the business and attempt to bring it into profitability. -Which of the following is true regarding the issue of George's father deciding to manage the partnership?

"Parent Involvement." Marcy and George, both artists, discussed forming a partnership to paint portraits. George's parents were interested in investing in the partnership, but they wanted to avoid any liability. George suggested forming a limited partnership. He told Marcy and his parents that they could do it very informally, that an oral agreement was sufficient, and that the parents would be protected from liability. Although George protested strongly on the basis that it was a waste of money, Marcy insisted that a certificate of limited partnership be filed with the secretary of state. After a few months, Marcy and George decided that they wanted to add a new partner, Betty, to the partnership as a general partner. Betty had some expertise in the portrait field but, unfortunately, she had also had some scrapes with local law enforcement. George's parents objected strenuously to the admission of Betty. Marcy and George took the position that the parents, as limited parents, had no say in the admission of a new partner. George's father, who had an interest in painting and was concerned that the partnership was not making very much money, decided to start coming to the partnership studio to manage the business and attempt to bring it into profitability. -Are George and Marcy correct in that limited partners have no say regarding the admission of new partners?

When is the winding-up stage in the termination of a partnership complete?

Which of the following was the result in the Case Opener involving whether a partner wrongfully caused dissolution of a partnership thereby barring him from recovering damages from other partners based upon improvements to an office building that were not properly approved?

Sam enters a limited partnership as a limited partner, contributing $100,000. The limited partnership consisting of two general and the two limited partners were sued over debt. Assuming the limited partnership is properly conducted, what is the maximum for which Sam can be held liable?

Set forth the order the Uniform Partnership Act establishes for the distribution of liquidated assets when a partnership is dissolved and has debt.

Which of the following is false regarding the winding-up process?

During the winding-up process, the partners may not engage in a business that competes with the partnership business.

"Fish Fiasco." Matt agreed to be a limited partner in Susie and Bill's business of importing tropical fish. Susie and Bill were general partners. Matt contributed $10,000 to the partnership as his capital contribution. The partnership made a profit of $30,000 the first year. Matt was paid nothing. When he inquired, Susie told him that a limited partner was only entitled to a share of profits as approved by the general partners and that perhaps things would be better the next year. The next year, however, importation was banned because of a fish disease, and the partnership lost money and owed debts of $60,000. At the end of the year, Susie and Bill asked Matt to contribute $20,000 to cover the debts. When Matt complained about the amount, Bill told him that he and Susie were being overly reasonable and that he was legally liable for an even larger percentage. In an attempt to keep the business afloat, Matt told Susie and Bill that they should consider suing a customer who had not paid a large account. Susie and Bill replied, however, that they were morally opposed to lawsuits and that they had the final say on litigation. -Which of the following is true regarding Matt's entitlement to share in profits?