Chuck, Howard, and Ben Decide to Go into a Business

question 107

Multiple Choice

Chuck, Howard, and Ben decide to go into a business venture, developing and distributing educational software. For tax reasons, they do not incorporate. Each contributes $10,000, and Howard also contributes a truck and his programming expertise. They agree that all three will be actively involved in the day-to-day management of the business. To determine their rights and obligations, they enter into a one-page agreement that provides only that each of Chuck, Howard, and Ben is to get 33-1/3% of the profits and also specifically states that they are not to be viewed as partners. Based on these facts, which of the following statements is true?

• A) Chuck, Howard, and Ben will not be considered partners because of their express intention in their agreement.
• B) Chuck, Howard, and Ben are not partners because they do not share profits in proportion to their capital contributions.
• C) Chuck, Howard, and Ben are not partners because to be partners they must be professionals, such as dentists, lawyers, or doctors.
• D) Chuck, Howard, and Ben will be considered partners in the eyes of the law because they share profits and are involved in the management of the business.
• E) Chuck, Howard, and Ben will be considered partners, but someone claiming against the partnership will only be able to collect 33-1/3% from any one partner because of the agreement.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, usually as a distribution of profits.

Profits

Profits represent the financial gain obtained when the revenues generated from business activities exceed the expenses, costs, and taxes needed to sustain the operation.

Nonparticipating

A term used to describe policies or investments that do not share in the profits or surplus of a company, such as nonparticipating life insurance policies that do not pay dividends.

Non-cumulative

Refers to types of shares or dividends that do not accumulate or carry over unpaid dividends into future periods.