Business Structure Paper 1

(a) Federal or state governments do not typically require any formal filing. If the business operates under a name different from that of the sole proprietor, most states require that a fictitious name statement be filed. Answer (b) is incorrect because the sole proprietorship and the sole proprietor are not separate legal entities. Answer (c) is incorrect because a sole proprietor does not have partners or shareholders from whom to obtain capital. Answer (d) is incorrect because the simplicity of this business structure is one of its advantages in its formation and operation.

(b) A general partnership is an association of two or more persons to carry on a business as co-owners for profit. There must be at least two partners involved in order for a partnership to exist. Answer (a) is incorrect because a general partnership is normally not recognized as a taxable entity under federal income tax laws. Answer (c) is incorrect because execution of written articles of partnership is not required to create a general partnership. A partnership agreement may be oral or in writing. Answer (d) is incorrect because a partnership does not have to provide for apportionment of liability for partnership debt. Note that even if the partners agreed to split partnership liability in a specified proportion, third parties can still hold each partner personally liable despite the agreement.

(d) A partnership involves two or more persons to carry on a business as co-owners for a profit. Partnerships do not include nonprofit associations such as charitable organizations, labor unions or clubs.

(b) A silent partner does not help manage the partnership but still has unlimited liability.

(d) A partnership agreement may be expressed or implied based upon the activities and conduct of the partners. The expressed agreement may be oral or in writing with, in general, one exception. A partnership agreement that cannot be completed within one year from the date on which it is entered into must be in writing. Answer (b) is incorrect because the partners may reside in different states without having to put the partnership agreement in writing. Answer (a) is incorrect because the $500 amount applies to the sale of goods which must be in writing, not partnerships. Answer (c) is incorrect because the purpose of the partnership is irrelevant. Agreements to buy and sell real estate must be in writing, while an agreement to form a partnership whose principal activity will involve the buying and selling of real estate normally need not be in writing unless the stated duration exceeds one year.

(d) Under RUPA, the partnership is a legal entity that can own property in its own name. The partners also have joint and several liability for all debts whether they are based in contract or tort.

(c) The partners may agree to share profits as well as losses unequally. Answer (a) is incorrect because the partners may agree that ownership in the partnership is unequal. Answer (b) is incorrect because under RUPA, the partnership is a separate legal entity. Answer (d) is incorrect because the partners may agree to unequal management rights.

(d) Profits and losses in a general partnership are shared equally unless otherwise specified in the partnership agreement. If partners agree on unequal profit sharing but are silent on loss sharing, then losses are shared per the profit sharing proportions. The partnership agreement for Owen Associates provided that profits be paid to the partners in the ratio of their financial contribution to the partnership. The ratios are as follows: Total contributed $10,000 + 30,000 + 50,000 = $90,000 Moore $10,000 ÷ 90,000 = 1/9 Noon $30,000 ÷ 90,000 = 1/3 Kale $50,000 ÷ 90,000 = 5/9 For the year ended December 31, 2008, Owen had losses of $180,000. Therefore, Kale would be allocated $100,000 of the losses ($180,000 × 5/9).

(b) An incoming partner has the same rights as all of the existing partners. Thus, an incoming partner has the right to participate in the management of the partnership. Answer (a) is incorrect since the incoming partner acquires more than just the right to profits. Answer (c) is incorrect since a person admitted as a partner into an existing partnership is only liable for existing debts of the partnership to the extent of the incoming partner’s capital contribution. Answer (d) is incorrect because a partner need not make a capital contribution to be admitted with the same rights as the other partners.

(b) A partner is free to assign his interest in any partnership to a third party. However, the assignee does not become a partner by virtue of this assignment, but merely succeeds to the assignor’s rights as to profits and return of partner’s capital contribution. The assignee does not receive the right to manage, to have an accounting, to inspect the books, or to possess or use any individual partnership property. Since Bean was not made a partner, he is entitled to Cobb’s share of TLC’s profits, but does not have the right to participate in the management of TLC.