Deck 32: Limited Liability Companies and Special Business Forms

Question 1

As in a partnership, a limited liability company may pay no taxes-profits can be passed through to the members, who pay personal taxes on the profits.

Answer 1

True

Question 2

Unlike a sole proprietorship or a partnership, a limited liability company cannot be held liable for a loss caused by the wrongful acts of its members.

Answer 2

False

Question 3

When the member of a limited liability company engages in fraud on the firm's behalf, the member is not likely to be held personally liable.

Answer 3

False

Question 4

The members of a limited liability company should protect their interests by creating a written operating agreement.

Question 5

Because title to the property of a limited liability company must be held in the name of one or more of its members, disputes over its ownership is avoided.

Question 6

The management of a limited liability company must include at least one of the members.

Question 7

A limited liability company is an aggregate of its members, not a separate legal entity.

Question 8

If the members of a limited liability company want to reinvest profits in the business, they may opt for the firm to be taxed as a corporation.

Question 9

The members of a limited liability company have considerable flexibility in managing the business of the firm.

Question 10

Most states apply to a limited liability company formed in another state the law of the state in which the firm currently does most of its business.

Question 11

To form a limited liability company, articles of organization must be filed with an attorney's office.

Question 12

In most circumstances, the manager of a limited liability company is liable in that capacity for the liability of the firm.

Question 13

When the promoter of a limited liability company enters into a preformation contract on the firm's behalf, the company must adopt the contract to enforce it.

Question 14

A limited liability company is a citizen only of the state in which it was formed.

Question 15

Like a sole proprietorship or a partnership, the members of a limited liability company have unlimited liability for the firm's debts.

Question 16

When a member of a limited liability company guarantees payment of a loan to the firm, the member is personally liable for the obligation.

Question 17

In a state in which the managers of a limited liability company owe fiduciary duties to the firm and its members, those members can sue the managers for breaching a fiduciary duty.

Question 18

Choosing a business organizational form that limits its owners' liability may lead to greater profits for the firm.

Question 19

Organizing as a limited liability company prevents the firm from attracting foreign investors.

Question 20

An operating agreement is required for a limited liability company to exist, and it must be in writing.

Question 21

If a joint venturer secretly profits from a project that was supposed to be a venture-related deal, the other joint venturers may be awarded damages for the breach of loyalty.

Question 22

The operating agreement of a limited liability company cannot provide for the calculation of a buyout price on a member's dissociation because the event has not yet occurred.

Question 23

Grape Vineyards LLC, the members of which include Howie and Ilya, can hold title to property because as a limited liability company the firm is

A) the sum of its members.
B) a non-entity
C) a legal person.
D) a holding company.

Question 24

Ensure Care LLC's owners are Fez and Guan. As a limited liability company, Ensure Care enters into contracts

A) as an aggregate of its owners.
B) only through its owners
C) as a legal entity apart from its owners.
D) only in conjunction with its owners.

Question 25

If the members of a limited liability company do not stipulate in their operating agreement how voting rights will be apportioned, in most states, only the member-managers will be entitled to vote.

Question 26

A syndicate may be organized as a corporation or a partnership, or in some situations as no recognizable form of business organization.

Question 27

If a limited liability company is not meeting the economic purpose for which it was established, a court may order the dissolution of the firm.

Question 28

In most situations, with respect to a limited liability company's debts, the firm's members are shielded from

A) all personal liability.
B) no personal liability.
C) the loss of their capital investment in the firm.
D) liability for conduct that leads to a piercing of the "corporate veil."

Question 29

Because the activities of a partnership are more limited than the business of a joint venture, the members of a joint venture are presumed to have more power to bind their co-venturers.

Question 30

Like a partner in a partnership, the member of a limited liability company has the power to dissociate from the firm at any time, but may not have the right.

Question 31

The operating agreement of a limited liability company and a state's LLC statute can be applied together to determine the outcome of a dispute between the firm's members.

Question 32

The beneficiaries of a business trust are personally liable for the trust's debts and obligations.

Question 33

Like partners, unless otherwise agreed, joint venturers have an equal voice in controlling a venture-related project.

Question 34

When a limited liability company is dissolved, the members may preserve the assets for a reasonable time to optimize their return during the winding up process.

Question 35

A cooperative can be incorporated.

Question 36

Among the states, the law governing limited liability companies is far from uniform because

A) there is no Uniform Limited Liability Company Act.
B) a limited liability company is a hybrid form of business organization.
C) state limited liability company statutes vary from state to state.
D) the federal government has not enforced the law uniformly.

Question 37

In a joint stock company, the shareholders are considered to be agents of one another, as the partners are in a partnership.

Question 38

If a member of a limited liability company dissociates from the firm in violation of the operating agreement, the member can be held liable for any loss to the business resulting from the withdrawal.

Question 39

If a member of a limited liability company dissociates from the firm, the other members can continue the firm's business, and the dissociated member can continue to act as an agent for the firm.

Question 40

A business organizational form that limits its owners' liability allows the firm to lawfully

A) act recklessly.
B) engage in misconduct.
C) take risks.
D) all of the choices.

Question 41

Paving LLC is a foreign limited liability company in the state of Ohio. In dealing with Paving, Ohio will apply the law of the state where the firm

A) was formed.
B) is headquartered.
C) does business.
D) will receive consistent treatment.

Question 42

Rocket Corporation and Star Inc. wish to combine their capabilities to launch a single flight to the moon. The appropriate legal entity for this project is most likely

A) a business trust.
B) a joint stock company.
C) a joint venture.
D) a syndicate.

Question 43

Accounting LLC is a member-managed limited liability company. Unless the members have agreed otherwise, all decisions with respect to the firm's business are made by

A) majority vote.
B) the firm's board.
C) the senior members.
D) the firm's chief executive officer.

Question 44

In some states, to form a limited liability company, a business must have

A) a registered promoter.
B) a designated founder.
C) at least two members.
D) a non-member manager.

Question 45

With respect to taxes imposed on limited liability companies, most states

A) follow the federal rules.
B) exempt the firms from federal taxes.
C) permit the firms to choose whether to follow the federal rules.
D) offer a hybrid tax regime.

Question 46

Global Capital S.A. is a foreign investor. With respect to the operations of a limited liability company in the United States, Global can

A) become a member, but cannot otherwise participate.
B) become a member.
C) not become a member, but can participate.
D) not become a member or participate.

Question 47

Start-Up LLC is a limited liability company without a written operating agreement. Among the members, a dispute arises concerning the division of profits. Under most LLC statutes, the profits will be

A) distributed according to members' proportionate ownership in the firm.
B) divided equally among the members.
C) forfeited to the state.
D) reinvested in the business until the dispute is resolved.

Question 48

Singh, a member of Trucking LLC, ceases to be associated in the carrying on of the business of the firm. Despite the dissociation

A) the member's duty of care continues with respect to prior events.
B) the member's duty of loyalty continues until the firm dissolves.
C) the member does not lose the right to participate in management.
D) the member does not lose the right to act as an agent for the firm.

Question 49

Data Analytics LLC is a limited liability company. Unless the firm's articles of organization specify otherwise, it will most likely be assumed that the firm is

A) member-managed.
B) manager-managed.
C) an aggregate of member and non-member managers.
D) run by an outside professional management group.

Question 50

A limited liability company that wants to distribute profits to its members could avoid "double taxation" by electing to be taxed as

A) a person.
B) a corporation.
C) a sole proprietorship.
D) a partnership.

Question 51

Greenway Corporation and Happy Trails, Inc., combine their efforts to build a network of biking and hiking trails along an unused railroad spur. Their form of business organization is

A) a business trust.
B) a joint stock company.
C) a joint venture.
D) a syndicate.

Question 52

Oil Inc. and Petro Corporation form a joint venture to design and test petroleum storage facilities and equipment. When a dispute arises, Oil files a suit against Petro. The court is most likely to apply the same principles to this joint venture as it applies to

A) sole proprietorships.
B) limited liability companies.
C) corporations.
D) partnerships.

Question 53

A limited liability company that operates in more than one state may not receive consistent treatment. This is because, according to the principle that in most states determines the law that applies to a foreign limited liability company, one state's courts must

A) interpret and apply another state's laws.
B) strictly apply its own jurisprudence.
C) arrive at a consensus between sometimes conflicting rules.
D) equitably balance the different state laws.

Question 54

As the promoter of Glassworks LLC, Hans enters into a contract with Interstate Transport Company. Once formed, Glassworks can

A) forego an adoption process and simply enforce the contract.
B) adopt the contract through novation.
C) obtain the benefits of the deal without obligation.
D) pierce Interstate's "corporate veil" to hold Hans liable on the contract.

Question 55

Dairy Products, Inc., and Eden Farms Corporation form a joint venture to make and test-market Frosty Ice Cream. If this joint venture is like most joint ventures, it will continue

A) for an implied duration of not more than six months.
B) for a single project only.
C) for an express duration of not more than one year.
D) in perpetuity.

Question 56

Loren, Marie, and Nina form a syndicate to buy a professional soccer franchise. This syndicate could be set up as

A) a joint venture.
B) a corporation.
C) a sole proprietorship.
D) a limited liability company.

Question 57

Bayside Restaurant LLC is a limited liability company. Its sole member is Conrad. For federal income tax purposes, unless the firm indicates otherwise, it will automatically be taxed as

A) a person.
B) a corporation.
C) a sole proprietorship.
D) a partnership.

Question 58

To gain an advantage in a business deal, Masonry LLC engages in fraud. Nicole, a member of Masonry, significantly contributes to the firm's misconduct. For any resulting damages, a court is most likely to hold Nicole

A) personally absolved.
B) personally liable.
C) liable but only to the extent of the member's investment in the firm.
D) liable but only to the extent of any amount that the firm cannot pay.

Question 59

Like other limited liability companies, for federal jurisdictional purposes, Rodeo Productions LLC is most likely a citizen of

A) all states in the United States.
B) every state of which its members are citizens.
C) any state in which it does business.
D) no state-an LLC is not a "citizen."

Question 60

Phone Apps LLC is forming as a limited liability company. To become a manager-managed firm, Phone Apps' members must

A) refrain from participating in the firm's operations.
B) form a joint venture.
C) elect to apply the principles of partnership law to their firm.
D) expressly adopt the corporate form of business organization.

Question 61

Leon, Michael, Nolan, and O'Neill join together to buy a professional basketball franchise. Their selected form of business organization is an investment group, which is also known as

A) a business trust.
B) a joint stock company.
C) a joint venture.
D) a syndicate.

Question 62

Croissants Corporation and Donuts Company transfer their assets to Edibles Inc., which manages the assets and distributes the profits to Croissants and Donuts. This arrangement is

A) a business trust.
B) none of the choices.
C) a joint venture.
D) a syndicate.

Question 63

Overseas Shipping Corporation and Port Storage Company transfer their assets to Quality Operations, Inc., which manages the assets and distributes the profits to the beneficiaries. This form of business organization is

A) a business trust.
B) a joint stock company.
C) a joint venture.
D) a syndicate.

Question 64

A group of consumers form Grocers Mart Cooperative. This form of business organization makes it possible for these consumers to

A) avoid personal liability for the acts of the cooperative.
B) obtain an exemption from the state laws governing corporations.
C) pay no taxes on their business income.
D) pool their resources to gain an advantage in the marketplace.

Question 65

Orly's Adventure Travel and Paquito's Wild River Tours form a joint venture. Orly can participate in the venture's management to

A) the extent that she assumes liability for the venture's debts.
B) the extent of her investment in the venture.
C) any extent.
D) no extent.

Question 66

Business Media, a partnership, publishes periodicals, including Cycle Review. DangerZoners, also a partnership, publishes Extreme Sports. Business Media and DangerZoners agree to pool their resources in a one-time deal to print and market a book, Future Runs. In contracting with Geo Cache, Inc., for supplies to print the book, Business Media commits fraud. In contracting with Host Articles Agency for materials to use in Extreme Sports, DangerZoners commits fraud. Geo Cache and Host Articles file suits against Business Media and DangerZoners. What type of business organization has Business Media and DangerZoners formed? To whom, if anyone, is Business Media liable? To whom, if anyone, is DangerZoners liable?

Question 67

Valu Food Market is an incorporated cooperative. Like other incorporated cooperatives, Valu Food distributes profits to its owners on the basis of

A) the amount of capital they contribute.
B) the degree to which they participate in management.
C) their transactions with the cooperative.
D) the requirements of the state in which it was incorporated.

Question 68

Trans-Pacific Company and USA Export, Inc., form a business organization to engage in importing and exporting. Its assets are held in the names of the members and its shareholders have personal liability. This organization is

A) a business trust.
B) a joint stock company.
C) a joint venture.
D) a syndicate.

Question 69

Licensed fishing outfits in Bayou City form a business organization to provide, without profit, an economic service to its members. This is

A) a business trust.
B) a cooperative.
C) a corporation.
D) a joint stock company.

Question 70

Rural Development Company and Suburban Real Estate Corporation form a joint stock company. This firm can be formed for, at the most,

A) an implied duration of not more than six months.
B) a perpetual existence.
C) a single activity or transaction.
D) an express duration of not more than one year.

Question 71

GMO Grain Corporation and Hybrid Yields, Inc., form a joint stock company. The ownership of this company is represented by

A) partnership certificates.
B) shares of stock.
C) title documents.
D) trust certificates.

Question 72

Commerce & Trade Corporation and Distance Shipping & Transport, Inc., form a business trust. eCharge Auto Company and Fleet Electric Corporation form a joint stock company. Green AgriCorp and Harvest Farms, Inc., form an incorporated cooperative. What features do these combinations of business organization have in common?