Law Legal Studies · Commerce Accountancy

Partnership and Business Law

1,019 Questions

Test your knowledge of partnership regulations and business law with these practice questions. The topics include the rights of minor partners, firm dissolution, retirement rules, and public notices. This material is crucial for law exams and legal studies.

Rights of minor partnersPublic notice requirementsFirm dissolution rulesPartner retirementHolding out partner principlePartnership deed provisions

Partnership and Business Law Questions

Multiple choice

Which of the following are the rights of a partner in a partnership firm?

W. To receive share in the profits X. To take part in the conduct and management of business Y. To receive remuneration for active working in the firm Z. To receive interest on the capital invested in the firm

  1. X and Y

  2. X and Z

  3. X and W

  4. X, Z and W
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A partner has the right to receive remuneration and interest on capital only if within the limits prescribed by the law as well as specified in the partnership deed.

Multiple choice

In which of the following cases may a partnership firm be dissolved?

X. On the death of a partner Y. On the insolvency of a partner Z. On the retirement of a partner

  1. X and Y

  2. X and Z

  3. Y and Z

  4. X, Y and Z
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The dissolution of partnership takes place in the following circumstances: (a) By the expiry of the fixed term for which the partnership was formed (b) By the completion of the adventure (c) By the death of a partner (d) By the insolvency of a partner (e) By the retirement of a partner

Multiple choice

Which of the following is correct?

  1. A partnership firm has a separate legal entity apart from partners

  2. Two firms can form a new partnership

  3. The partners of individual firm can form a partnership

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Multiple choice

The partnership can be formed:

  1. Two brothers Y (age 17 years), Z (age 16 years) decide to form partnership

  2. Two brothers X (age 18 years), Y (age 17 years) decide to form partnership with a provision that Y will share the profits only

  3. Three brothers W (age 19 years), X (age 18 years), Y (age 17 years) decide to form a partnership with a provision that Y will share the profits only.

  4. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Minors (under 18) cannot be full partners in a partnership firm. Option A has both minors (16 and 17). Option B has a 17-year-old minor. Option C has a 17-year-old minor. Even if they only share profits, minors lack capacity to be partners. Since all options A-C involve minors, D (None of these) is correct.

Multiple choice

The essential elements of a partnership _________.

  1. must co - exist before a partnership can come into existence

  2. may be brought in within a reasonable time of a partnership coming into existence

  3. may be brought in any time either during the creation of partnership or even thereafter before a partnership can come into existence, but they must coexist within one year of a partnership coming into existence

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A partnership requires mutual agency, shared profits, and agreement to conduct business - all essential elements must co-exist from the moment the partnership is formed. They cannot be brought in later; the partnership is not valid until all elements are present simultaneously.

Multiple choice

In the absence of an agreement, partners are entitled to

  1. salary

  2. commission

  3. interest on loan and advances

  4. profit share in capital ration
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under the Indian Partnership Act, in absence of agreement, partners are NOT entitled to salary or commission. They can only claim interest on loans and advances made to the firm (at 6% p.a.). Capital ratio determines profit share only if specified in agreement.

Multiple choice

Partner by holding out is also known as ______.

  1. active partner

  2. dormant partner

  3. partner by estoppel

  4. partner by stoppage
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Partner by holding out means a person represents themselves as a partner (or allows others to believe so), making them liable to third parties who relied on this representation. This is called 'partner by estoppel' in legal terms - they are estopped from denying they are not a partner.

Multiple choice

Unless agreed otherwise, it is presumed that

  1. the new partner acquires his share in profit from all the old partners in their old profit sharing ratio

  2. the new partner acquires his share in profit from all the old partners equally

  3. the old partners continue to share the remaining profit equally

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When a new partner is admitted without specific agreement, it's presumed they acquire their share from all old partners in their OLD profit sharing ratio. This is the standard default rule under partnership accounting principles.

Multiple choice

Goodwill bought in by incoming partner in cash for joining in a partnership firm is taken away by the old partners in

  1. Old Profit Sharing Ratio

  2. New Profit Sharing Ratio

  3. Sacrificing Ratio

  4. Capital Ratio
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Goodwill brought in by an incoming partner is distributed to old partners in their sacrificing ratio, not old or new profit sharing ratios. The sacrificing ratio represents the extent to which each old partner has given up their share in favor of the new partner. Capital ratio is irrelevant to goodwill distribution.

Multiple choice

Which of the following are types of partnerships on the basis of liability?

  1. Partnership at will and particular partnership

  2. Partnership at will and general partnership

  3. Particular partnership and general partnership

  4. General partnership and limited partnership

  5. Limited partnership and particular partnership
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

General partnership and limited partnership are types of partnerships on the basis of liability.

Multiple choice

Which of the following statements is/are correct? a. A person who does not take part in day to day activities of the business is known as a partner by Estoppels. b. A person who is represented as a partner and despite knowing this does not deny this impression, is known as a partner by holding out. c. A person whose association with the firm is not disclosed to the general public is known as the Nominal partner.

  1. only a

  2. only b

  3. only c

  4. both a and c

  5. a, b and c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A person who is represented as a partner and despite knowing this does not deny this impression, is known as a partner by holding out. This is the correct statement.

Multiple choice

Which of the following could be the consequences of the non registration of partnership of a firm? a. A partner of an unregistered firm cannot file a suit against the firm or any of the partners. b. The firm cannot file a suit against third parties. c. The firm cannot file a suit against one of the partners. d. Third parties cannot file a suit against the firm.

  1. a, b and c

  2. a, b and d

  3. b, c and d

  4. both a and d

  5. a, b, c and d
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This is the correct option. A partner of an unregistered firm cannot file a suit against the firm or any of the partners. The firm cannot file a suit against third parties and against one of the partners.

Multiple choice

Which of the following clauses should the Memorandum of Association contain apart from the Name clause, the Objects clause and the Registered Office clause?

  1. Liability clause
  2. Capital clause
  3. Association clause
  4. Statutory clause

  1. Both 1 and 2

  2. Both 2 and 4

  3. 1, 2 and 3

  4. 2, 3 and 4

  5. 1, 2, 3 and 4
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The MOA also contains Liability clause, Capital clause and Association clause apart from the Name clause, the Objects clause and the Registered Office clause. Thus, this is the correct option.