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Free AICPA CPA-Business Exam Braindumps (page: 43)

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530 Questions & Answers
Page 13 of 132

Juan is a limited partner in ABC, Limited Partnership. Juan visited XYZ, Inc., a local supplier of dog food claiming to be a "partner" in the partnership and negotiated a distribution contract between the supplier and limited partnership on behalf of the partnership.
As a result of these actions, Juan:

  1. Has limited liability as a limited partner in reference to all creditors.
  2. Has limited liability as a limited partner to all creditors except XYZ, Inc.
  3. Has full personal liability to all creditors.
  4. None of the above.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: A limited partner will be considered a general partner with full personal liability only to those that the limited partner transacts with as if he were a general partner. Limited partners have no right to participate in management, such as negotiating contracts on behalf of the limited partnership. The limited partner will retain his status and limited liability to all others that the limited partner has not transacted with on behalf of the partnership.
Choices "a", "c", and "d" are incorrect, per the above rule.



Doug was the sole general partner in ABC, Limited Partnership. While driving to work one morning, Doug died in a car accident. The limited partnership:

  1. Continues to exist as it was before Doug's death.
  2. Dissolves by operation of law as a result of Doug's death.
  3. Dissolves only by attaining a judicial decree.
  4. Converts to a general partnership and all former limited partners become general partners.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: The death of a general partner will by operation of law, dissolve the limited partnership. Because the dissolution is by operation of law, there is no requirement to attain a judicial decree. Remaining limited partners do not automatically become general partners as a result of the death of the general partner.
Choices "a", "c", and "d" are incorrect, per the above rule.



Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership?

  1. Stockholders may be entitled to vote on corporate matters but limited partners are prohibited from voting on any partnership matters.
  2. Stock of a corporation may be subject to the registration requirements of the federal securities laws but limited partnership interests are automatically exempt from those requirements.
  3. Directors owe fiduciary duties to the corporation and limited partners owe such duties to the partnership.
  4. A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organizational document with the proper governmental body.

Answer(s): D

Explanation:

Choice "d" is correct. Both a limited partnership and a corporation:
1. Can only be created by statute, and
2. Each must file a copy of its certificate with the proper state agency.
Choice "a" is incorrect. There are instances in which limited partners do vote on certain partnership matters (e.g., approve new general or limited partners).
Choice "b" is incorrect. Limited partnership interests are not automatically exempt from the federal securities laws.
Choice "c" is incorrect. Limited partners do not owe a fiduciary duty to the limited partnership.



ABC, Limited Partnership, was formed by three brothers, Aaron, Barry, and Sam. Aaron is the general partner and devotes more than 60 hours per week to the business. Barry and Sam are limited partners who work for different companies having no relationship to the limited partnership. The partners' capital contributions are as follows: Aaron invested 20%. Barry and Sam invested 40% each.
During the formation of the limited partnership, the brothers signed an agreement that addresses how the brothers will split profits and losses. At year-end, the limited partnership enjoyed large profits due to high demand for the business' product line.
The profits will be divided:

  1. In proportion to each partner's capital contribution.
  2. According to the agreement.
  3. Equally.
  4. By determining by the amount of time and labor each partner devoted to the operation of the partnership.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: Partners in a limited partnership can agree as to how they will split profits and losses, with losses shared up to the amount of the limited partners' capital. Profits and losses are shared on the basis of percentages of capital contributions only in the absence of an agreement otherwise.
Choices "a", "c", and "d" are incorrect, per the above rule.






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