Business Law, Chapter 36: "Small Businesses and Franchises," and Chapter 37: "All Forms of Partnerships" flash cards

Entrepreneur

(36-1) A person who initiates and assumes the financial risk of a new business enterprise and undertakes it to provide or control its management.

Sole Proprietorship

(36-2) The simplest form of business organization, in which the owner is the business. The owner reports business income on their personal income tax return and is legally responsible for all debts and obligations incurred by the business.

Franchise

(36-3) Any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright in the selling of goods and services.

Franchisee

(36-3) One receiving a license to use another’s (the franchisor’s) trademark, trade name, or copyright in the sale of goods and services.

Franchisor

(36-3) One licensing another (the franchisee) to use the owner’s trademark, trade name, or copyright in the selling of goods and services.

Partnership

(37-1c) An association of two or more persons to carry on, as co-owners, a business for a profit (defined by the UPA).

Pass-Through Entity

(37-1f) A business entity that has no tax liability. The entity’s income is passed through to their owners, and they pay taxes on the income.

Information Return

(37-1f) A tax return submitted by a partnership that reports the business’s income and losses itself and does not pay taxes on the income, but each partner’s share of the profit (whether distributed or not) is taxed as individual income to that partner.

Articles of Partnership

(37-2a) A written agreement that sets forth each partner’s rights and obligations with respect to the partnership.

Partnership by Estoppel

(37-2c) A partnership imposed by a court when non-partners have held themselves out to be partners, or have allowed themselves to be held out as partners, and others have detrimentally relied on their misrepresentations.

Charging Order

(37-2d) An order granted by a court to a judgment creditor that entitles the creditor to attach a partner’s interest in the partnership (partnership law definition).

Joint Liability

(37-2e) A doctrine under which a plaintiff must sue all of the partners of a group, but each partner can be held liable for the full amount (partnership law definition).

Joint and Several Liability

(37-2e) A doctrine under which a plaintiff may sue all of the partners together or one or more of the partners separately.

Dissociation

(37-3) The severance of the relationship between a partner and a partnership or between a member and a limited liability company.

Buyout Price

(37-3c) The amount payable to a partner on their dissociation from a partnership, based on the amount distributable to that partner if the firm were wound up on that date, and offset by any damages for wrongful dissociation.

Dissolution

(37-3d) The formal disbanding of a partnership, corporation, or other business entity.

Winding Up

(37-3d) The second of two stages in the termination of a partnership or corporation, in which the firm’s assets are collected, liquidated, and distributed, and liabilities are discharged.

Buy-Sell Agreement

(37-3d) An express agreement made at the time of partnership formation for one or more of the partners to buy out the other or others should the situation warrant (in the context of partnerships).

Limited Liability Partnership

(37-4) A hybrid form of business organization that is used mainly by professionals who normally do business in a partnership. In this model, the partnership is a pass-through entity for tax purposes, but a partner’s personal liability for the malpractice of other partners is limited.

Family Limited Liability Partnership

(37-4c) A limited liability partnership (LLP) in which the majority of partners are members of a family.

Limited Partnership

(37-5) A partnership consisting of one or more general partners and one or more limited partners.

General Partner

(37-5) In a limited partnership, a partner who assumes responsibility for the management of the partnership and has full liability for all partnership debts.

Limited Partner

(37-5) In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in its management and has no liability for partnership debts beyond the amount of their investment.

Certificate of Limited Partnership

(37-5a) The document that must be filed with a designated state to form a limited partnership.

Limited Liability Limited Partnership

(37-5e) A type of limited partnership in which the liability of the general partner is the same as the liability of the limited partners - that is, the liability of all partners is limited to the amount of their investments in the firm.

False

5) True or False: In order to protect a trade secret, a business owner should file with the U.S. Patent and Trademark Office.

D) Material facts such as the basis of projected earnings figures.

25) Nico is interested in buying a franchise from Oz Inc. For Nico to make an informed decision concerning this purchase, Oz must disclose in writing or online:

A) General estimates of the costs and sales, but not the basis for them.
B) The money the franchisor makes from all its franchise sales.
C) No information.
D) Material facts such as the basis of projected earnings figures.

False

31) True or False: Sole proprietors are generally prohibited from obtaining liability insurance to help cover business risks.

A) An implied covenant of good faith and fair dealing.

33) Adam enters into a franchise agreement with Beta Computers Inc., in which Beta gives Adam territory that includes Clark County. Beta’s grant of additional franchises in the same territory to others may violate:

A) An implied covenant of good faith and fair dealing.
B) The U.S. Franchise Agency’s Purchase and Sales Regulations.
C) The Federal Trade Commission’s Franchise Rule.
D) Federal or state antitrust laws.

C) It typically allows the owner to retain full control of the business.

41) One benefit of a loan from the U.S. Small Business Administration (SBA) is:

A) It does not require the business owner to contribute personal funds.
B) The SBA offers larger loans than traditional banks.
C) It typically allows the owner to retain full control of the business.
D) The loan is interest-free for the first five years.

C) Gemma should require her employees to agree in employment contracts that they will never divulge the formula for the sandwich dressing.

44) Gemma wants to start a sandwich shop, using a secret formula for sandwich dressing that she developed in her kitchen. Gemma is concerned that employees of her shop may steal her formula and open up rival sandwich operations. Which statement is correct?

A) Gemma should register her formula with the U.S. Patent and Trademark Office.
B) Gemma cannot protect the formula for the sandwich dressing.
C) Gemma should require her employees to agree in employment contracts that they will never divulge the formula for the sandwich dressing.
D) Gemma should register her formula with the state intellectual property protection office.

A) Profits and losses will be divided equally between Alex and Priya.

1) Alex and Priya form a partnership to run a small tech consultancy. Alex contributes $70,000 in capital, while Priya contributes $30,000. Their partnership agreement clearly states how much each has contributed, but says nothing about how profits and losses will be divided. At the end of the year, the business earns $100,000 in profit. Under the UPA, how will the profits and losses be divided?

A) Profits and losses will be divided equally between Alex and Priya.
B) Profits are shared equally, but losses are shared based on capital contribution.
C) Alex receives 70% of the profits, and Priya receives 30%, based on their capital contributions.
D) Alex receives all of the profits because he contributed more capital.

D) Total access.

3) Dunn and Etta are partners in Fancee Fashion Stores, a partnership. In terms of the firm’s books, Dunn and Etta are entitled to:

A) Access in proportion to their participation in the management of the firm.
B) Access to the parts that directly relate to their capital contributions.
C) No access.
D) Total access.

A) As aggregates of members.

5) How were partnerships treated under the common law?

A) As aggregates of members.
B) As corporations.
C) As separate legal entities.
D) As sole proprietorships.

B) Uniform Partnership Act.

7) In an absence of an express agreement, partnerships are governed by the:
A) Articles of Incorporation.
B) Uniform Partnership Act.
C) Uniform Commercial Code.
D) Articles of Partnership.

B) The sale is not legally enforceable because transferring real property requires a written contract.

12) Sofia and Liam decide to open a bakery together. They agree verbally to share profits and work responsibilities equally. Later, Sofia signs a contract to sell the bakery's building to a third party without informing Liam. Liam objects and says the sale is not valid because he never agreed to it. There is no written partnership agreement. Under the UPA, which of the following is most accurate?
A) The sale is invalid because all business decisions in a partnership require unanimous consent.
B) The sale is not legally enforceable because transferring real property requires a written agreement.
C) The sale is valid because verbal agreements are always enforceable in partnerships.
D) The sale is enforceable unless Liam can prove Sofia acted in bad faith.

D) Without more.

23) Alan and Beth agree while talking on the phone to form a partnership to run a carpentry shop. Their partnership agreement is legally binding:

A) Only if a third party knows of the agreement.
B) Only if the agreement is reduced to writing.
C) Only if the parties exchange valid consideration of tangible value.
D) Without more.

D) Wrongful termination.

25) Because a franchisor’s termination of a franchise often has adverse consequences for the franchisee, much litigation involves claims of:
A) Fraud.
B) Breach of good faith.
C) Breach of contract.

D) Wrongful termination.

B) Only liable for the debt up to the amount of his capital contribution.

26) Ben is admitted to Consolidated Associates, an existing partnership. A partnership debt incurred before the date of the admission comes due. Ben is:

A) Not liable for the debt.
B) Only liable for the debt up to the amount of his capital contribution.
C) Personally liable only to the extent that the other partners do not pay.
D) Personally liable to the full extent of the debt.

A) The franchisor owns the trademark and hence the business.

32) Generally, the termination provisions of franchise contracts are more favorable to the franchisors because:

A) The franchisor owns the trademark and hence the business.
B) Termination harms the franchisor more than the franchisee.
C) The franchisee is more likely than the franchisor to seek termination.

D) The franchisor needs protection from wrongful termination.

C) Balance the rights of both parties.

40) Jack buys a Kitchens, Inc., franchise, which the franchisor later terminates. In determining whether the termination was proper, a court will generally:

A) Favor Kitchens, Inc., since it is trying to protect the value of its franchise name.

B) Favor Jack, since franchisees are often dealt with unfairly by franchisors.

C) Balance the rights of both parties.

D) Underscore the interest of consumers in affordability.

B) An aggregate of individuals.

41) For federal income tax purposes, a partnership is treated as:

A) A tax-paying entity.

B) An aggregate of individuals.

C) A separate, legal entity.

D) A limited liability corporation.

False

3) True or False: In a Limited Liability Limited Partnership (LLLP), general partners has the same limited liability as limited partners.

B) Acts as the firm’s manager.

4) A-1 Capital, LP, is a limited partnership. An A-1 limited partner loses their limited liability if they:

A) Has full awareness of the firm's business activities.

B) Acts as the firm's manager.

C) Contributes property in exchange for a partnership interest.

D) Invests in the firm's competitor.

B) Buy out the interested of the dissociated partner.

8) Mary, Terry, and Tracy were partners in a custom boat-building business, but Terry dissociated from the partnership. That means Mary and Tracy must:

A) Dissolve the partnership.

B) Buy out the interest of the dissociated partner.

C) Return the dissociated partner's original capital contribution.

D) Sue to recover debts owed to the partnership by the dissociated partner.

False

11) True or False: In winding up a limited corporation, creditors are paid after partners receive their capital contributions.

C) The transfer will likely be exempt from real estate transfer taxes under Iowa law.

17) The Jackson family operates a large farm in Iowa and decides to form a Family Limited Liability Partnership (FLLP). All partners are members of the family, including siblings and cousins. One year later, they decided to transfer ownership of part of the farmland from one partner to another. Which of the following is most likely true about this transfer?

A) The transfer will be subject to standard real estate transfer taxes.

B) The transfer is not legally valid unless approved by the Secretary of State.

C) The transfer will likely be exempt from real estate transfer taxes under Iowa law.

D) Only the managing partner can legally own real estate in an FLLP.

B) Jacobsen will be dissociated from the partnership.

18) After Koss, Schmidt, and Jacobsen have been partners for three years, Jacobsen declares bankruptcy. What will happen as a result?

A) Nothing. The partnership will continue as always.

B) Jacobsen will be dissociated from the partnership.

C) The partnership will terminate due to bankruptcy.

D) The partnership will terminate due to withdrawal.

D) The court may consider judicial dissolution due to the impracticality of continuing the partnership.

19) Cellino and Barnes are equal partners in a law firm. Cellino opens a new office in California under the firm's name without Barnes's consent and claims 99.1% ownership of that branch. Tensions escalate, and Barnes sues for judicial dissolution of the New York firm, arguing that Cellino is diverting resources and harming their partnership. Although the firm remains profitable, Barnes argues that the situation is unworkable. Which of the following best explains how a court is likely to view Barnes's request?

A) The court will require the partners to arbitrate before considering dissolution.

B) The court will deny the request because the firm is still profitable.

C) The court will automatically dissolve the partnership due to a breach of fiduciary duty.

D) The court may consider judicial dissolution due to the impracticality of continuing the partnership.

D) To the extent of his capital contribution.

25) AreaBret is a general partner in Capitol Realty, LLP, a limited liability partnership formed for the practice of providing structural engineering services. Capitol Realty cannot pay its debts. Bret is personally liable for the debts:

A) To no extent.

B) In proportion to the number of partners in the firm.

C) To the full extent.

D) To the extent of his capital contribution.

B) Law of the state where the LLP was formed.

26) Suppose a limited liability partnership (LLP) formed in one state wants to do business in another state. However, the LLP laws in the two states provide different liability protection. In this case, the law that usually applies is the:

A) Federal law only.

B) Law of the state where the LLP was formed.

C) Law of the state where the LLP is operating.

D) Whichever state law the partners choose.

A) Dissociation.

28) When one partner's relationship with a partnership comes to an end but the partnership continues to do business, it is known as:

A) Dissociation.

B) Dissolution.

C) Termination.

D) Incorporation.

False

32) True or False: If an event occurs that makes it unlawful for the partnership to continue its business, the firm will disassociate.

C) A general partner goes bankrupt.

37) Generally speaking, a limited partnership will be dissolved if:

A) The partnership business relocates.

B) A limited partner dies.

C) A general partner goes bankrupt.

D) A limited partner gets married.

C) The state in which Ace was formed.

39) Ace Accountants, LLP, a limited liability partnership, does business in more than one state. Most likely, Ace's liability outside its state of formation will be determined by the law of:

A) The first state that enacted an LLP statute.

B) Any "neutral" state.

C) The state in which Ace was formed.

D) The state in which Ace was doing business when the liability arose.