The Law of Corporations and Other Business Organizations

Chapter Review Questions

1. What five elements are necessary to form a
partnership?

2. In what ways are partnerships similar to
sole proprietorships?

3. Suppose that John, Megan, and Alex form
a partnership to operate a restaurant in a
state that follows the UPA 1997. John decides
to buy hamburger buns from the
Fresh Bread Bakery. He enters into a contract
with the owner of the Fresh Bread
Bakery, on behalf of the partnership, for
the delivery of 500 hamburger buns each
week, for the price of $70 per week. If Megan
and Alex disagree with this decision
because they prefer another baker, is the
partnership still liable for this contract?
Yes, John has apparent authority to
bind the other partners in a relationship
with a third party. The representatives
of the Fresh Bread Bakery would be reasonable
in assuming that John had authority
to enter into the contract to bind
the partnership.
Must the Fresh Bread Bakery be paid out
of the partnership funds?

4. Suppose again that John, Megan, and Alex
form a partnership, and John has contributed
50 percent of the capital, Megan has
contributed 30 percent of the capital, and
Alex has contributed 20 percent of the capital.
Who has the right to manage the partnership
under the UPA 1997, assuming the
partnership agreement has no contrary provisions?
Assuming that there are no partnership
agreement provisions to the contrary,
John, Megan, and Alex all have an equal
right to manage the partnership business.
How will decisions be made in the event of
a disagreement?

5. In a state that follows the UPA 1914, how
is partnership property owned? How is that
different from property owned by a partnership
in a state that follows the UPA 1997?

6. Kara, Tim, and Anna have formed a partnership
to purchase and renovate old
homes. Kara and Tim have contributed the
bulk of the capital for the partnership, and
Anna’s main contribution has been her services.
All partners agree that either Kara or
Tim should have the authority to sign documents
transferring real estate on behalf of
the partnership and that Anna should not
have that authority. If the partnership is
formed in a state that follows the UPA
1997, what steps must they take to give notice
to those dealing with their partnership
of their agreement with regard to the authority
to transfer real estate?

7. Janet is a partner in a 10-partner partnership
located in a state that follows the UPA
1997. If Janet decides to withdraw from the
partnership before its duration lapses, what
are the possible outcomes to the partnership
and the remaining partners?

What if the partnership is located in a state
that follows the UPA 1914?

8. Suppose that three retirees form a partnership
to own and operate a horse ranch.
They all plan to work at the ranch and
board horses to supplement their retirement
income. If the business does not go as
planned, and the retirees earn no income
from the ranch, do they still have a valid
partnership?

Why or why not?

9. Suppose that Ken, Bill, and Mary form a
partnership to build and lease a strip mall.
The partners agree that Ken will be responsible
for securing the location on which to
build the mall. Ken selects a site that turns
out to have poor soil quality, and the project
suffers several setbacks before they finally
decide it is not feasible, and the partners
decide to go their separate ways. If the
partnership funds have all been exhausted,
and the partnership still owes $20,000 to an
environmental engineering firm that Ken
hired, who must pay?

What if Ken and Mary have no substantial
personal assets, but Bill has $30,000 in the
bank?

10. Suppose that the three partners of a partnership
have a falling out, and two of them stop
communicating, leaving the third partner to
wind up and dissolve the partnership. The
third partner claims she is entitled to compensation
for her time spent winding up the
partnership, but the other partners claim that,
unless agreed to in a partnership agreement,
partners are not entitled to compensation for
their time spent on partnership business. Assuming
that their partnership agreement is
silent on the matter, who is right? Why?