Partnership vs. Corporation Quiz

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Questions and Answers

What is a key advantage of a partnership compared to a corporation?

Unlimited liability for all partners

More formal management structure

Easier and less expensive to organize (correct)

Greater ability to raise large amounts of capital

What is one disadvantage of a partnership?

Easily dissolved and thus unstable (correct)

Higher costs of operation than a corporation

More personal and informal structure

Limited decision-making flexibility

How is a partnership created?

Through government regulation

By agreement of the partners (correct)

By issuing a certificate of incorporation

Through a formal board meeting

What is the liability extent for partners in a partnership?

Unlimited, including personal assets Signup and view all the answers

What governs the management structure of a corporation?

A Board of Directors Signup and view all the answers

What is the maximum number of persons allowed in a partnership?

15 Signup and view all the answers

What happens to the right of succession in a partnership?

There is no right of succession Signup and view all the answers

What feature distinguishes a corporation from a partnership in terms of legal personality?

Incorporation by SEC Signup and view all the answers

What type of partnership has a fixed term or is formed for a particular undertaking?

Partnership with a fixed term Signup and view all the answers

Which type of partnership is formed for the transaction of business?

Commercial Partnership Signup and view all the answers

Which type of partnership allows all partners to contribute property and share in the profits acquired from it?

Universal partnership of all present property Signup and view all the answers

What distinguishes a de jure partnership from a de facto partnership?

It has an official registration. Signup and view all the answers

In which type of partnership do the partners have liability only to the extent of their personal contributions?

Limited Partnership Signup and view all the answers

Which partner contributes both property and personal service to the partnership?

Capitalist-Industrial partner Signup and view all the answers

Which type of partner is responsible for winding up the affairs of the partnership after dissolution?

Liquidating partner Signup and view all the answers

What characterizes the object of a particular partnership?

It is based on determinate specific undertakings. Signup and view all the answers

How does a limited partner's liability differ from that of a general partner?

Limited to their capital contribution Signup and view all the answers

Which of the following is a characteristic of a general partnership?

All partners are liable to the extent of their separate properties Signup and view all the answers

What characterizes a partnership at will?

It has no specified term. Signup and view all the answers

What does a universal partnership of profits entail regarding partner contributions?

Profits from all partners' work are included. Signup and view all the answers

In which classification can partners be liable for debts beyond their contributions?

General Partnership Signup and view all the answers

Who among the following is primarily responsible for managing the partnership?

Managing partner Signup and view all the answers

What defines a universal partnership of all present property?

All contributions become part of a common fund. Signup and view all the answers

Which characteristic is NOT true for a limited partnership?

General partners are not liable for the debts of the partnership. Signup and view all the answers

What distinguishes a silent partner from a secret partner?

A silent partner does not take part in business operations, whereas a secret partner actively participates but is not publicly acknowledged. Signup and view all the answers

What is the purpose of the Article of Partnership?

It provides a written agreement with essential provisions of the partnership. Signup and view all the answers

Which of the following is true regarding the registration of partnerships with the SEC?

Partnerships with P3,000 or more are valid even if not registered. Signup and view all the answers

How often must CPAs and CPA firms renew their registration?

Every three years Signup and view all the answers

What defines a nominal partner?

A partner who is mistakenly believed to be a partner but has no actual partnership. Signup and view all the answers

What is one of the characteristics of a partnership?

Separate juridical personality Signup and view all the answers

What distinguishes a partnership from a corporation?

Partnerships have unlimited liability for partners Signup and view all the answers

Which of the following is not a characteristic of a partnership?

Fixed and perpetual existence Signup and view all the answers

What is an impact of limited life in a partnership?

It can lead to dissolution upon withdrawal of partners Signup and view all the answers

Which statement about partnership liability is accurate?

Limited partners are only liable up to their contribution amount Signup and view all the answers

Which of the following correctly describes mutual contribution in a partnership?

Mutual contribution can be in the form of assets, skills, or labor. Signup and view all the answers

What is the main advantage of a partnership compared to a sole proprietorship?

Enhanced financial capabilities through combined resources Signup and view all the answers

Study Notes

BAM 201 IBT: Partnerships and Corporations (Part 1)

Partnership Definition: Two or more individuals agree to contribute money, property, or industry to a shared fund, aiming to divide profits. (Civil Code of the Philippines, Article 1767)

Objectives

Define partnership and its characteristics/classifications
Differentiate partnerships from corporations
Understand and discuss accounting procedures in partnership formations

Phases of Partnership

Formation: Establishing the partnership
Operation: Running the partnership's activities
Dissolution: Terminating the partnership
Liquidation: Settling the partnership's affairs

Characteristics of Partnerships

Ease of Formation: Requires less formality than corporations, often a simple agreement.
Separate Juridical Personality: The partnership is a separate entity from its owners (partners).
Mutual Contribution: Partners contribute money, assets, or skills to the shared fund.
Division of Profit/Loss: Distributing profits and losses among partners as agreed.
Mutual Agency: Each partner acts as an agent of the partnership in conducting business.
Limited Life: The partnership might dissolve due to new partnerships, deaths, insolvencies, or other factors.
Unlimited Liability: Partners are personally responsible for partnership debts, beyond their investment.
Income Taxes: Partnerships are taxed at a 30% rate of taxable income (often excluding professional partnerships).
Partner's Equity Accounts: Each partner has a capital account and withdrawal account.

Advantages and Disadvantages of Partnerships (vs Sole Proprietorship/Corporation)

Advantages (vs Sole Proprietorship):*
Enhanced financial resources
Combination of partner skills/expertise
More flexibility in decision-making.
Advantages (vs corporation):*
Easier and less expensive to establish
More adaptable and flexible operations
Disadvantages:*
Partnerships are dissolved easily, less stable than corporations.
Mutual agency and unlimited liability can create personal financial obligations.
Less effective than corporations at raising large amounts of capital.

Partnerships vs Corporations (Differences)

Manner of Creation: Partnerships are formed by agreement; corporations by law.
Number of Persons: Partnerships can have two or more; corporations require at least 5 but not more than 15.
Commencement of Juridical Personality: Partnership's existence begins when formed; corporation when incorporated.
Management: Partnerships often have a managing partner, or members working together to run the business; corporations have a board of directors.
Extent of Liability: Partners are often personally liable for debts; corporation shareholders are typically only liable to the extent of their investment.
Right of Succession: Usually, partnerships do not directly transfer ownership.
Term of Existence: Partnerships have an agreed-upon timeframe; corporations have no fixed or stipulated term.

Classifications of Partnerships

By Object/Subject Matter: Universal (all present/future assets) or Particular (specific undertaking).
By Liability: General (all partners liable) or Limited (some partners have limited liability).
By Duration: Fixed term or ongoing (at will).
By Purpose: Commercial/Trading or Professional/Non-trading.
By Legality: De Jure (legally formed) or De Facto (not legally formed according to the applicable law).

Kinds of Partners

General Partner: Liable for all debts, beyond investment
Limited Partner: Liable only to the extent of their contribution
Capitalist Partner: Contributes money/property
Industrial Partner: Contributes expertise/skills
Managing Partner: Oversees partnership operations
Liquidating Partner: Handles partnership closing
Dormant Partner: Passive in partnership
Silent Partner: Does not participate but known
Secret Partner: Active but unknown to external parties
Nominal Partner: Appears to be a partner but isn't

Article of Partnership

Agreement in writing
Essential provisions (name, purpose, location, formation date, duration, responsibilities, distribution plans)

SEC Registration

Partnerships with capital over P3,000 (Philippine Peso) must register with the Securities and Exchange Commission (SEC).

Accreditation to Practice Public Accountancy

Certified Public Accountants (CPAs) and associated firms must register with the Professional Regulation Commission and Professional Regulatory Board.

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Description

Test your understanding of the key differences between partnerships and corporations with this quiz. Explore topics such as liability, management structure, and types of partnerships to assess your knowledge. Ideal for business students and professionals alike.