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Business org licensing practice questions

25 questions from the contractor business and law practice test.

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Business org licensing practice test

10 questions, graded as you go, with the reason for every answer. No sign-up.

What this covers

Sample questions

Two contractors form a general partnership. One partner signs a supply contract for a partnership job and the bill goes unpaid. Who can the supplier collect from?

  1. Only the partner who signed the contract
  2. The partnership and either partner personally
  3. Only the partnership's own bank accounts and equipment
  4. Each partner, but only for half of the bill
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B. The partnership and either partner personally

Each general partner is an agent of the partnership and is personally liable for partnership debts, so the supplier can pursue the firm and either partner for the full amount. Liability is not limited to the signing partner or split in halves as far as the creditor is concerned.

Reference: Uniform Partnership Act: general partner agency and joint and several liability

How is the income of a general partnership treated for federal income tax?

  1. The partnership files an information return and the partners pay the tax
  2. The partnership pays corporate tax and the partners pay tax on dividends
  3. The partnership pays the tax and the partners report nothing further
  4. The managing partner alone reports all income on a personal return
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A. The partnership files an information return and the partners pay the tax

A partnership is a pass-through entity: it files Form 1065 for information only and gives each partner a Schedule K-1, and each partner pays tax on a share of the income. Tax at the entity level followed by tax on dividends describes a C corporation.

Reference: Internal Revenue Code Subchapter K; IRS Form 1065 and Schedule K-1

In a limited partnership, what is the usual exposure of a limited partner who takes no part in managing the business?

  1. Unlimited liability for all of the firm's debts
  2. Liability for half of all firm debts
  3. No financial exposure of any kind
  4. Loss of the amount the partner invested
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D. Loss of the amount the partner invested

A limited partner is a passive investor whose risk is normally capped at the capital contributed. Unlimited personal liability belongs to the general partner, who manages the business; a limited partner still can lose the investment, so the exposure is not zero.

Reference: Uniform Limited Partnership Act: liability of limited partners

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