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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 business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

When it is not registered, a partnership firm is _____________________.

  1. deemed to be an illegal association and is disallowed to carry on business

  2. allowed to carry on business subject to payment of penalty

  3. allowed to carry on business subject to certain disabilities

  4. allowed to carry on business only with the special permission of the Registrar of Firms
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Registration of partnership is not compulsory under law. But if a partnership firm is not registered, it can not file a suit against the third party. No partner can file a suit against any other partner. The firm can not file a suit against any partner. But third party can file a suit against the firm.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Features of a partnership firm are _____________________.

  1. Two or more persons are carrying common business under an agreement.

  2. They are sharing profits and losses in the fixed ratio.

  3. Business is carried by all or any of them acting for all as an agent

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

All these are features of partnership. To form a partnership minimum two persons are required. A single person can not form partnership. Partnership is made to share profits and losses in the ratio mentioned in partnership deed. In partnership business is carried by all or any one of them can work for all. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Under _________ there have been made rules regarding the dissolution of firm.

  1. Indian Partnership Act, 1932

  2. Indian Partnership Act section 45

  3. Companies Act section 48

  4. Companies Act section 45
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In India, Partnership is one of the most practiced form of organisation. So to control partnership business Indian partnership Act was framed. It came into force on 1st October, 1932. It extends to the whole of India except Jammu and Kashmir. Section 40 to 44 of Indian Partnership Act contains provisions regarding dissolution of partnership firm. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Distribution of loss in case of insolvency is to be charged ____________.

  1. From solvent partners first

  2. From insolvent partner

  3. In insolvency debts cannot be cleaned as one partner is insolvent

  4. No solvent partner is responsible for the debts due for insolvent partner
Reveal answer Fill a bubble to check yourself
A 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 charged from the solvent partner in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm. . 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

In a partnership firm one partner is solvent and rest all partner becomes insolvent. What will be the effect on partnership firm?

  1. Dissolution of firm

  2. Dissolution of partnership

  3. Firm will continue to exist

  4. Both a & c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to Section 41 of Indian partnership act, 1932, If in a partnership one partner is solvent and rest all partner becomes insolvent then it leads to compulsory dissolution of firm. The court orders in this case to dissolve the firm. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Correct sequence of payment after the dissolution of firm will be :

  1. Debt to parties, advances given by partners, each partner account of capital residue to be divided amongst partners in profit sharing ratio

  2. Debt to parties, account of capital of each partner, advances given by partners, residue to be divided amongst partners in profit sharing ratio

  3. Debt to parties, balance from P&L account amongst partners in their profit sharing ration

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

Option A is correct. After the dissolution of firm, first of all loan given by any partner is paid because loan and advances are liability for the firm. After paying all the liabilities any amount left is divided divided among partners in their profit sharing ratio. If this sequence is not followed debt could not be paid because amount available has already been taken by partner. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Garner vs. Murray gave accounting treatment regarding 

  1. Insolvent of a partner

  2. Death of partner

  3. Admission of a new partner

  4. Dissolution at will
Reveal answer Fill a bubble to check yourself
A 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. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Under following conditions the court may declare for the dissolution of firm:

  1. A partner is guilty of misconduct.

  2. It is just and equitable to dissolve the firm.

  3. Business can only be carried on loss.

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

When a partner is guilty of misconduct, the other partners can move to the court for dissolution because the misconduct of one partner brings bad name to the firm. When court has just and equitable reason to dissolve then court may order for dissolution. If the firm is suffering from continuous loss, then the court may order for dissolution if there is no capital available for further growth.  

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

The main account for dealing with partnership dissolution would be:

  1. Realization

  2. Dissolution

  3. Appropriation

  4. Revaluation
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Dissolution of partnership firm means that the firm closes down its business and comes to an end. A realization account is opened for disposing off all the assets of the firm and making payment of all the liabilities. It is a nominal account. The object of such an account is to find out the profit or loss on realization of assets and payment of liabilities. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Choose the correct answer from the alternatives given.
A minor together with two major persons:

  1. Can form a partnership

  2. Can form a partnership subject to provision that minor shall not share the losses

  3. Can not form a partnership at all

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

Indian Contract Act clearly states that no person less than the age of 18 years can be a party to contract and a partnership is a contract between the partners. Hence a minor together with two major persons can not form a partnership. A minor can only be admitted to the benefits of partnership. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Upon the dissolution of a firm, in piecemeal distribution of cash, cash is distributed among partners in the :

  1. Sacrificing ratio

  2. Ratio of capitals

  3. Profit sharing ratio

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

In piecemeal distribution of cash, there are two methods:
1. Proportionate Capital Method: The partners whose capitals are more than the proportionate to other partner's capital should first be refunded so much as to bring down their capitals to proportionate levels. 
2. Maximum Loss Method: An alternative method of piecemeal distribution is to calculate the maximum possible loss on every realisation after the outside liabilities and the partner's loan has been paid.  

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

A court can order the dissolution of the partnership firm in the following cases except ___________.

  1. when a partner transfer his share to a third party without the consent of other partners

  2. on the death of partner
  3. when the number of partner exceeds $20$

  4. on the expiry of the period for which it was formed
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to the provisions of the Indian Partnership Act, 1932, a court can order the dissolution of the partnership firm in the following cases:

  1. On the death of the partner.
  2. When the number of partner exceeds 20.
  3. On the expiry of the period for which it was formed.
When a partner transfer his share to a third party without the consent of others only the partner is dissolved from the firm and not the whole firm.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Which of the following is the case of voluntary dissolution of partnership?

  1. Dissolution by consent

  2. Dissolution by agreement

  3. Dissolution by notice

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

Section 40 provides for dissolution of a firm by voluntary acts of the partners. It lays that, "a firm may be dissolved with the consent of all partners or in accordance with a contract between the partners."

Dissolution by voluntary act of partners includes the following modes :
1. Dissolution by Consent
2. Dissolution by agreement
3. Dissolution by notice

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

In which of the following ways a partnership firm may be dissolved?
I. Dissolution by Agreement
II. Compulsory dissolution
III. Dissolution by Notice
IV. Dissolution by court

  1. I and II.

  2. I and III.

  3. III and IV.

  4. I, II, III and IV.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the provisions of the Indian Partnership Act, 1932, dissolution of a firm means closing down the undertaking, suspending permanently the activities of a partnership business or a complete breakdown of a partnership. It can be dissolved in the following ways:

  1. Dissolution by agreement.
  2. Compulsory dissolution.
  3. Dissolution by notice.
  4. Dissolution by court.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

The dissolution of partnership may take place by ____________________.

  1. Change in existing profit-sharing ratio among partners

  2. Admission of a new partner

  3. Retirement of a partner

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

Dissolution of partnership changes the existing relationship between partners but the firm may continue its business as before. The dissolution of partnership may take place in any of the following ways:

1. Change in existing profit sharing ratio among partners
2. Admission of a new partner
3. Retirement of a partner
4. Death of a partner
5. Insolvency of a partner
6. Completion of the venture, if partnership is formed for that.
7. Expiry of the period of partnership, if partnership is for a specific period of time