The Law of Corporations and Other Business Organizations

Chapter Review Questions

1. Is a limited partnership treated as a separate
entity for all purposes?

If not, give an example of an instance in
which a limited partnership is treated as an
aggregate of its partners.

2. Why is the fiduciary duty between the general
partner and limited partners even
greater than the fiduciary duty between
partners in a general partnership?

3. Suppose that Beth Henderson is a limited
partner of the ABC Limited Partnership, a
limited partnership formed for the purpose
of purchasing and developing real estate.
Beth wanted to be a limited partner because
she has considerable personal assets that
she wants to protect. Soon after the formation
of the limited partnership, Beth becomes
concerned about its management by
the general partners. She starts attending the
general partners’ meetings and participating
in all major decisions concerning the limited
partnership. However, the partnership
becomes insolvent anyway. Creditors are
left with thousands of dollars’ worth of unpaid
bills. The limited partnership and the
general partners have no substantial cash or
other assets. If the limited partnership is in
a state that follows the RULPA, might
creditors prevail in a lawsuit against Beth
Henderson to recover their losses?

Why or why not?

4. Brian, Jeanne, and William have formed
OakRidge Limited Partnership, a limited
partnership for shopping center development
and management. William is the general
partner and Brian and Jeanne are limited
partners. The limited partnership is
about to enter into an agreement to purchase
a new shopping center; however, the
bank that is lending them the money wants
personal guarantees from each partner. If
the limited partnership is governed by the
laws of a state that follows the Revised
Uniform Limited Partnership Act, would
Brian and Jeanne be able to guarantee the
obligation of the OakRidge Limited Partnership
without risking their limited liability
status?

5. Suppose that Jake, Bryan, and Jill decide to
form a limited partnership for the purpose
of owning and operating a liquor store.
They are all concerned about their personal
liability, so they decide that they will all be
limited partners. Would this be possible?

Why or why not?

What if Jill agreed to be both a general
partner and a limited partner?

6. Why might a limited partnership want to
put only the minimum required information
in the limited partnership certificate
and go into more detail in the limited partnership
agreement or other documents?

7. What is one advantage the limited partnership
has over the general partnership with
regard to raising capital for the business?

8. Who may initiate a derivative action?

9. Suppose that Katherine, Brianna, and Paige
have formed a limited partnership to operate
a video arcade. Katherine is the general
partner; she has contributed $2,000 and her
time to get the operation running. Brianna
and Paige, the limited partners, have each
contributed $3,000. After one year of operation,
the arcade has debts of $10,000, and
the three partners decide to discontinue
their business and the limited partnership.
Brianna and Paige want their investment
returned to them. Who should Katherine,
who is winding up the business, pay first—
Brianna and Paige, or the creditors?

How much will Brianna and Paige receive?

How about Katherine?

10. Suppose a limited partnership has just one
general partner, who suddenly dies. Will
the partnership dissolve?

Could a limited partnership continue if one
of three general partners suddenly dies?

If yes, under what circumstances?