1.

Sole Proprietorships and Partnerships

Business Structure

61

1. Sole Proprietorships and Partnerships (Questions)

MULTIPLE-CHOICE QUESTIONS (1-39)

1.

Which of the following statements is not correct

with respect to a sole proprietorship?

a. Profits and losses from the business

activities flow through the sole

proprietorship to the sole proprietor for tax

purposes.

b. A sole proprietorship may file a

bankruptcy petition under the provisions

of Chapter 7 of the Federal Bankruptcy

Act.

c. The sole proprietorship is not considered

a separate legal entity apart from its

owner.

d. The sole proprietor is personally liable for

all debts of the business.

2.

Which of the following statements is not true for

sole proprietorships?

a. A sole proprietorship is a legal entity.

b. The after-tax cash generated by a sole

proprietorship belongs to the proprietor.

c. A sole proprietor must file a Schedule C

with his Form 1040.

d. A sole proprietor is personally liable for all

of the proprietorship’s business debts.

3.

Partnership law is based on

Revised Uniform

Agency law Partnership Act

a. No No

b. Yes No

c. No Yes

d. Yes Yes

4.

Which of the following is not correct regarding

partnerships?

a. A partnership can be formed from the

association of two corporations.

b. A partnership is a separate legal entity.

c. A partnership is a separate taxable entity.

d. A partnership agreement can modify

many parts of the Revised Uniform

Partnership Act.

5.
The Frontier Partnership is a general partnership

that was formed 12 years ago to perform personal

emotional assessment services. Although

Frontier was profitable at first, it has incurred huge

losses in the past few years. At the last

partnership meeting, the majority of the partners

agreed that bankruptcy is the only recourse.

With respect to the Federal Bankruptcy Code,

which of the following statements is true?

a. The partnership may file for bankruptcy.

b. All of the partners must each file for

bankruptcy.

c. At least 75% of the partners must each

file for bankruptcy.

d. The partnership is in a business that is

not permitted to file for bankruptcy.

6.

Which of the following is required for a valid

general partnership to exist?

Written agreement Verbal agreement

a. Yes Yes

b. No No

c. Yes No

d. No Yes ©TAC all rights reserved

Business Structure
62

7.

Which of the following is not true of a limited

partnership?

a. Under a limited partnership, all limited

partners have limited liability.

b. The general partner of a limited

partnership has limited liability.

c. The admission of a new limited partner to

the partnership must be approved by all

partners.

d. A limited partnership must file a certificate

of limited partnership with the secretary of

state.

8.

Robert is a general partner in the RST

Partnership. As he cannot pay his bills, on

January 1, he assigns his interest in the

partnership to his creditor, Charlie, in full

settlement of his debt to Charlie. Which of the

following statements is correct?

a. Charlie is responsible for all partnership

debts incurred after January 1, but not

prior to January 1.

b. After January 1, Charlie will be

responsible for all partnership debts

regardless of the date on which they were

incurred.

c. Robert remains responsible for the debts

of the partnership incurred after January 1.

d. Neither Robert nor Charlie will be

responsible for partnership debts incurred

after January 1.

9.

Mary has been approved by all the partners of the

BBC partnership for admittance to the general

partnership. Which of the following is correct?

a. Mary has unlimited liability like the other

partners for the acts of the partnership.

b. Mary will share equally the profits and

debts of the partnership.

c. Mary generally cannot receive

compensation for her efforts related to the

partnership.

d. Mary must make a capital contribution,

cash or other assets, to the partnership.

10.

A partner can assign his interests in the

partnership to another person. What right(s) of

the partner does the assignee have in the

partnership?

Return of

Voting Management contribution

a. Yes Yes Yes

b. Yes Yes No

c. No Yes No

d. No No Yes

11.

Carey, Hall, and Bing are partners of a general

partnership. The partnership agreement calls for

the partners to share profits as follows: Carey-

20%, Hall-30%, and Bing-50%. There is no

provision for allocating losses. The partnership

had losses of $90,000 for the current year. What

amount of losses should be allocated to Bing?

a. $30,000

b. $0

c. $90,000

d. $45,000 ©TAC all rights reserved

Business Structure

70

1. Sole Proprietorships and Partnerships (Solutions)

MULTIPLE-CHOICE ANSWERS AND

EXPLANATIONS

Sole proprietorships
1.

(b) Answer (b) is correct because it is not a true

statement. A sole proprietorship is not

considered a legal entity separate from the sole

proprietor. Therefore, the sole proprietor, instead

of the sole proprietorship, must file a bankruptcy

petition personally under Chapter 7 of the Federal

Bankruptcy Act. Answers (a), (c) and (d) are all

true statements.

【ワンポイント解説】

個人企業は、連邦破産法・第７章「清算」

(Liquidation) の規定に基づく破産の申立を行うこ

とはできない。

2.

(a) Answer (a) is correct because it is not a true

statement. A sole proprietorship is an

unincorporated business owned by an individual.

It is not a legal entity and all of the assets are

owned by the proprietor. Likewise, the proprietor

is personally liable for all the proprietorship’s

business debts (d). Since a proprietorship is not

a legal entity, it is not required to file a separate

tax return. The proprietor should file a Schedule

C with his/her Form 1040 (c). The after-tax cash

generated by the sole proprietorship belongs to

the proprietor to use for whatever purpose s/he

chooses, e.g., expansion of the business,

personal use, etc (b).

【ワンポイント解説】

個人企業は、個人事業主 (sole proprietor) から独

立した法主体 (legal entity) ではない。

Characteristics of partnerships

3.

(d) Answer (d) is correct. Partnership law is

based on agency law because in a partnership

each partner is an agent for the partnership and

the other partners. The Revised Uniform

Partnership Act (RUPA) has been adopted by

most states and is the source of partnership law in

those states.

【ワンポイント解説】

パートナーシップは、改正統一パートナーシップ

法 (RUPA: Revised Uniform Partnership Act) ・

改正統一リミテッド・パートナーシップ法

(RULPA: Revised Uniform Limited Partnership

Act)、および代理法 (agency law) によって規制

される。

4.

(c) All of the statements are true except (c).

Entity theory holds that the partnership is a

separate legal entity but not a separate taxable

entity. A partnership can be an association of

two or more “persons” with the term “persons”

including corporations, limited liability companies

and the other partnerships. Like other acts, the

Revised Uniform Partnership Act (RUPA) would

provide guidance in situations where there is no

partnership agreement or where the agreement is

silent on an issue. A partnership agreement can

modify many parts of the RUPA.

【ワンポイント解説】

パ ー ト ナ ー シ ッ プ は 独 立 の 納 税 主 体 (taxable

entity or a tax-paying entity) ではない。パートナ

ーシップ所得は直接各パートナーに配分され、各

パートナー固有の個人所得と合算されて個人レベ

ルで課税される。このような課税方法を、パスス

ル ー 課 税 （ ま た は 構 成 員 課 税 ・pass through

taxation）という。1. Sole Proprietorships and Partnerships

Business Structure

71

5.

(a) Answer (a) is correct. For taxation purposes,

a general partnership is not taxed, but the profits

and losses flow through to the partners.

However, for bankruptcy purposes, a general

partnership is treated as a separate entity and

generally may file for bankruptcy.

【ワンポイント解説】
パートナーシップは、原則として連邦破産法

(Federal Bankruptcy Code) に基づいて破産の申

立を行うことができる。

Formation of a general partnership

6.

(b) Answer (b) is correct because no express

agreement to create a general partnership is

necessary. An agreement can be implied from

acts indicating intent to enter into a business

together. A written agreement is considered

prudent and desirable, but not required. An

express verbal agreement is not required, either.

A written agreement is required under the Statute

of Frauds if the partnership is to exist for longer

than one year.

【ワンポイント解説】

ゼネラル・パートナーシップを設立するのに、明

示の合意（文書または口頭の合意）は必ずしも必

要ではない。営利目的事業を共同で営む意思を示

す行為があれば、合意が存在すると認められる。

つまり黙示の合意でも、ゼネラル・パートナーシ

ップは成立しうる。

Types of partnerships and partners

7.

(b) Answer (b) is correct because it is the only

false statement. The general partner has

unlimited personal liability. A limited partner’s

liability is limited to his/her capital contribution (a).

The admission of a new limited partner requires

the approval of all partners (c). A written

certificate of limited partnership must be filed with

the secretary of state of the state in which it is

organized (d).

【ワンポイント解説】

リミテッド・パートナーシップにおける無限責任

パートナーは、ゼネラル・パートナーシップにお

けるパートナーと同様、パートナーシップ債務に

つき無限責任を負う。

Partner’s rights and liabilities

8.

(c) Answer (c) is correct. Assignment of an

interest in a partnership passes the rights to share

of profits and surplus and to return of capital

contribution on dissolution to the assignee.

However, the assignee does not receive the

management and other rights. The assignee

can not receive full rights of a partner. The

assignment does not pass the obligations under

the partnership to the assignee, either.

Therefore, although Charlie may receive any

profit allocation from the partnership, Robert will

remain liable for all the partnership debts as a

partner. In order to pass all rights and

obligations to Charlie, the RST Partnership must

be dissolved and a new partnership must be

created with Charlie as a partner or all of the

partners of the RST Partnership must approve the

admission of Charlie as a new partner.

【ワンポイント解説】

パートナーシップ持分権の譲渡によって譲受人

(Charlie) が取得するのは「利益配分請求権」お

よび「解散時の出資金返還請求権」（つまり、譲

渡可能持分権）だけであり、パートナーの地位も

「経営権その他の権利」も取得しない。したがっ

て持分権譲渡後も、譲渡人 (Robert) がパートナ

ーとしてパートナーシップ債務に対する責任を負

い続ける。

9.

(c) Answer (c) is correct. No partner in a

partnership has the right to compensation for their

efforts other than the allocation of profits unless it

is provided for in the partnership agreement.

Answer (a) is not correct because Mary has

unlimited liability for acts of the partnership which

occur after her admission to the partnership.

Answer (b) is incorrect because Mary will only be

liable for the debts arising prior to the admission

to the extent of her capital contribution. Answer

(d) is not correct because a capital contribution is

not always required of a new partner to be

admitted to the partnership.

【ワンポイント解説】

パートナーシップ合意に別段の定めがある場合を

除き、パートナーには、提供したサービス（労務）

に対する報酬 (compensation or remuneration)

を受取る権利はない。