Law Legal Studies · Commerce Accountancy

Partnership and Business Law

1,007 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 book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Under the Partnership Act, on which of these grounds a partner of a firm may sue for dissolution of the firm :

  1. Insanity of a partner

  2. Misconduct of a partner

  3. In both the cases

  4. Marriage of any partner
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Dissolution of the firm by the court can be done in both the cases when there is insanity of a partner or if a partner misconduct according to Section 44 of the Indian Partnership Act. Section 44 provides the various grounds for dissolution of firm by court.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Which of the following will result in dissolution of firm?

  1. Retirement

  2. Death

  3. Explusion

  4. Dissolution
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Retirement, Death, Expulsion does not result in dissolution of firm. It only result in dissolution of partnership. Remaining partners can still agree to continue the business of partnership firm. But dissolution of firm resulted in a complete closure of business. All the assets are sold and liabilities are paid and business ceases to exist.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

According to the Partnership Act, which of this statement about the dissolution of the partnership is true.

  1. Dissolution of partnership is called dissolution of the firm

  2. Dissolution between the two partners is called the dissolution of the firm

  3. On the completion of the venture of the firm is called the dissolution of the firm

  4. Dissolution between all the partners of a firm is called dissolution of the firm
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Dissolution of partnership is different from dissolution of firm. Dissolution between partners does not lead to dissolution of firm. But if dissolution is between all the partners of a firm then it leads to dissolution of firm because if there are no partners to work then firm will automatically get dissolved. No firm can work without partners. For partnership minimum two persons are required. If there are no partners then there is no partnership firm. 

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Under section $44$ of the Partnership Act, a firm may be dissolved on happening of certain contingencies like :

  1. Insanity of a partner

  2. Marriage of a partner

  3. By retirement of a partner

  4. Partner joining political parties
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Marriage of a partner does not affect the working of partnership. Retirement and a partner joining political parties can also not be a ground for dissolution because remaining partner can continue the business of partnership. But According to Section 44 of Indian Partnership Act, When a partner becomes of unsound mind and is unable to continue further then the court may order for dissolution of firm. Insanity can be ground for dissolution.  

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Non-registration of firm does not effect :

  1. Right to sue for dissolution

  2. Right to sue any partner

  3. Right to claim for set-off

  4. All the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Registration of partnership is not compulsory under law. If partnership firm is not registered, it can not enforce its claims against a third party in the court of law. Partner of non - registered firm can not file a suit against other partner. But if there exist a just and equitable cause for dissolution, partners can file a suit for dissolution in court.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Dissolution of partnership means :

  1. Dissolution of firm

  2. Business of the firm is continued

  3. Partnership amongst all the partners comes to an end

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dissolution of partnership is different from dissolution of partnership firm. In dissolution of partnership firm business comes to an end. But Dissolution of partnership means end of old partnership agreement and reconstruction of partnership due to admission, retirement and death of partner. In this business of the firm does not comes to an end. 

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

If a partner cannot clear his debts on dissolution, the other partners must clear these debts in the following manner:

  1. Debts are shared equally

  2. Debts should not be cleared by other partners

  3. Partnership profit/loss sharing ratio

  4. In the ratio of their last agreed capital balance
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If a partner can not clear his debts on dissolution, the amount not paid is a loss to the firm which under the Garner vs Murray rule is to be borne by the solvent partner. The loss is a capital loss which should be borne by the solvent partners in the ratio of the capital in the balance sheet on the date of dissolution.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Garner Vs Murray requires _________.

  1. that all partners should bring in cash equal to their respective shares of the loss on realization

  2. that all partners should bring in cash equal to their respective shares of the loss on realization and deficiency of insolvent partner should be borne by solvent partners in their profit sharing ratio

  3. that all partners including insolvent partner should bring in cash equal to their respective shares of the loss on realization and deficiency of insolvent partner should be borne by solvent partners in their last agreed capital ratio

  4. that the solvent partners capital loss should be borne in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the Garner Vs Murray rule the loss on the account on the insolvency of a partner is a capital loss which should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Where the continuing partners carry on the business of the firm, the dead partner whose claim is not settles, his executor -
X. is entitled to share of profits since date of cessation as partner.
Y. is not entitled to claim anything other than unsettled amount.
Z. is entitled to $6\%$ interest p.a on the unsettled amount.
Select the correct answer from the options given below.

  1. Y is correct.

  2. Only X is correct.

  3. Only Z is correct.

  4. Either X or Z at his option.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the Indian Partnership Act, if a partner dies and the settlement is delayed, the executor is entitled to either the share of profits earned using their capital or interest at 6% per annum on the amount due, at their option.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

In which of the following case Garner v Murray rule is NOT applicable? 
1. Only one partner is solvent.
2. All partners are insolvent.
3. When partnership deed provides a specific method to be followed in case of insolvency of a partner

Select the correct answer from the options given below-

  1. 1 only

  2. 1 & 2 only

  3. 3 only

  4. 1, 2 & 3
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to Garner vs. Murray rule, if the partner becomes insolvent, he is unable to pay back the amount due to him. The amount not paid is a capital loss which should be borne by the solvent partner in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm. This rule is applicable when one partner is insolvent then other partner can bring the cash. But if only one partner is solvent or all partners are insolvent then there is no one to bring the cash. so this rule can not be applied. And if Partnership  deed provides a method to follow then that method will be followed only. 

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

The amount due to the retiring partner can be made by ________.

  1. lump sum payment method

  2. installment payment method

  3. annuity method

  4. both (A) or (B)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Business of a partnership firm may not come to an end due to the death of a partner. Other partners may shall continue to run the business of the firm. Readjustments takes place in case of death of a partner likewise the case of retirement of a partner. Whenever, a partner dies the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to b paid to discharge the claim of deceased partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation of profit and reserves are transferred to capital or current accounts of partners. Lastly, final amount due to the retiring partner is determined and discharged. 


There are two ways in which amount due to deceased partner is discharged:

1. Lump sum payment method - In this, if the firm has sufficient cash to pay off the amount due to the deceased partner, it pay the amount immediately, this is known as lump sum payment method.
2. Installment payment method - In this, if the firm  does not have sufficient cash to pay off the amount due to deceased partner, it pay the amount in installments, this is known as installment payment method.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Claim of the retiring partner is payable in the following form.

  1. Fully in cash.

  2. Fully transferred to loan account to be paid later with some interest on it.

  3. Partly in cash and partly as loan repayable later with agreed interest.

  4. Any of the above method.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a partner retires from a firm, other partners continue to run the business of the firm. Readjustments takes place in case of retirement of a partner. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange the amount to be paid to discharge the claims of the retiring partners. 

Amount due to retiring partners may be discharged in the following form:
1. Fully in cash. 
2. Fully transferred to loan accpunt to be paid later with some interest on it.
3. Partly in cash and partly as a loan repayble later with agreed interest.

Multiple choice organisation of commerce and management public sector undertakings & global enterprises characteristics, objectives and growth of public sector enterprises public, private and joint sector cooperatives

Limited liability partnership posses not more than $2$ of the following character.
$1$. Limited liability
$2$. Raise funds from public
$3$. No separation of management from owners
$4$. No Restriction on number of partners

  1. $2 \& 4$
  2. $1 \& 2$
  3. $1 \& 3$
  4. $1 \& 4$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence.

Multiple choice organization of commerce and management ownership structures - sole proprietorship and joint hindu family business hindu undivided family business introduction to huf joint hindu family business

Identify which statement is true and which is false?
$1.$ Any person can become member of HUF.
$2.$ In a HUF business, in the event of death of any of the co-parcener, his wife can claim share of profit.
$3.$ In a HUF business, the liability of the karta is Unlimited.
Select the correct answer from the options given below.

  1. $2$ and $3$
  2. $1$ and $3$
  3. $3$ and $2$

  4. None of above
Reveal answer Fill a bubble to check yourself
A Correct answer
Multiple choice organization of commerce and management ownership structures - sole proprietorship and joint hindu family business hindu undivided family business introduction to huf joint hindu family business

Which of the following statements is incorrect ?

  1. The Partnership Act, 1932 does not prescribes the maximum number of partners in a firm

  2. An agreement to carry on business in future cannot be the basis of partnership

  3. A permanent business undertaking is not essential for the formation of partnership

  4. Members of H.U.F. who carry on business and shares profits among them are also treated as partners
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The statement that members of an HUF are treated as partners is incorrect because an HUF is a separate legal entity governed by Hindu law, not the Partnership Act. The other statements correctly describe aspects of partnership law.