Fanny and John each own and manage their own companies. Fanny's business is manufacturing freight boxes of all types, and John's business is selling freight boxes to different industries. They decide to combine their expertise and knowledge to produce and sell freight boxes specifically designed for the new airline company that just formed in their city. Which of the following best describes the business formed by the parties?
Answer(s): D
Choice "d" is correct. 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. Choice "a" is incorrect. A general partnership is more broad in its business purpose than a joint venture is.Choice "b" is incorrect. A limited liability partnership is primarily designed for professionals who want to work as partners but with limited personal liability. Choice "c" is incorrect. Sole proprietorships have only one person in the business.
A sole proprietorship would be an ideal form of business to select if:
Answer(s): B
Choice "b" is correct. A sole proprietor is free to transfer or sell the business at will. Choice "a" is incorrect because a sole proprietor is personally liable for all obligations of the business. Choice "c" is incorrect. A sole proprietorship is not considered an entity separate from the sole proprietor.Choice "d" is incorrect because a sole proprietorship ends with the death of the sole proprietor.
Formation of which of the following types of business does not require the filing of documents with the state?
Answer(s): C
Choice "c" is correct. A sole proprietorship can be formed without filing with the state. Formation of either a corporation or a limited partnership requires a filing. Choices "a", "b", and "d" are incorrect per the Explanation above.
Which of the following forms of business can be formed with only one individual owning the business?
Choice "b" is correct. A sole proprietorship and (in most states) a limited liability company can be formed with only one owner. A partnership requires two or more partners. Choices "a", "c", and "d" are incorrect per the Explanation above.
Noll Corp. and Orr Corp. are contemplating entering into an unincorporated joint venture. Such a joint venture:
Answer(s): A
Choice "a" is correct. The legal requirements, the consequences, the advantages, and disadvantages of forming a joint venture generally are identical to those of a general partnership. Joint ventures are treated as a partnership in most important legal aspects. Choice "b" is incorrect. A joint venture need not be dissolved upon the completion of a single undertaking. Joint ventures may be formed for a single transaction or for a related series of transactions.Choice "c" is incorrect because a joint venture would be taxed like a partnership, not a corporation. Choice "d" is incorrect because a joint venture, like a partnership, may be formed without filing with the state.
What term is used to describe a partnership without a specified duration?
Choice "d" is correct. A partnership at will is a partnership with no definite term (i.e., without specified duration). Such a partnership can be terminated at any time. Choice "a" is incorrect. A partnership without a specified duration is called a partnership at will, not a perpetual partnership. There is no such thing as a perpetual partnership because a partnership is not perpetual. A partnership may be dissolved after a partner dies or otherwise dissociates from the partnership.Choice "b" is incorrect. A partnership by estoppel is the appearance of a partnership when there is no formal partnership. If parties who are not partners give the appearance to third parties that they are partners, the law may deem the parties to be a partnership by estoppel. The parties will be treated as partners, even though they are not.Choice "c" is incorrect. The legal term for a partnership of indefinite duration is a partnership at will, not an indefinite partnership.General Partnership
A general partnership must:
Choice "b" is correct. A partnership is an organization of two or more persons who carry on a business for a profit.Choice "a" is incorrect. Partnerships do not pay federal income taxes; the partners report their shares of the partnership's income on their individual returns. Choice "c" is incorrect. A partnership agreement need not be in writing. Choice "d" is incorrect. If the partnership agreement is silent on the apportionment of liability for partnership debts, state law or the Uniform Partnership Act will cover the omission.
When a partner in a general partnership lacks actual or apparent authority to contract on behalf of the partnership, and the party contracted with is aware of this fact, the partnership will be bound by the contract if the other partners:
Choice "b" is correct. "Yes - No."Rule: 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). Rule: Amending the partnership agreement (presumably to grant authority) will not cause the partnership to be bound because authority must exist at the time the contract is made or the partnership must ratify the contract.Choices "a", "c", and "d" are incorrect, per the above rules.
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