Deck 17: Limited Liability Business Forms

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

True

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

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

Question 5

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.

Question 6

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

Question 7

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 8

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 9

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 10

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

Question 11

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

Question 12

Choosing a business organizational form that limits its owners' liability is associated with the potential for higher profits.

Question 13

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

Question 14

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.

Question 15

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 16

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

Question 17

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

Question 18

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 19

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

Question 20

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 21

In a limited partnership, a general partner assumes no liability for partnership debts beyond the amount of capital contributed.

Question 22

In some states, limited partners cannot withdraw from a limited partnership.

Question 23

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 24

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 25

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 26

In a limited partnership, every partner has full responsibility for the management of the partnership and its obligations.

Question 27

All of the statutory and common law rules governing partnerships apply to a limited liability partnership (LLP), except those modified by the applicable LLP statute.

Question 28

A private and informal agreement usually suffices to form a limited partnership.

Question 29

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 30

A limited liability partnership allows professionals to avoid personal liability for the malpractice of other partners.

Question 31

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 32

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 33

The extent to which a limited partner can engage in management before being exposed to liability for partnership obligations is clear.

Question 34

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 35

To open and operate Boo! City, a Halloween costume and paraphernalia shop, Dwayne and Erica form a business organization that combines the limited liability aspects of a corporation with the tax advantages of a partnership. Their form of business organization is

A) a limited liability partnership.
B) a limited partnership.
C) a limited liability company.
D) a limited liability limited partnership.

Question 36

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 37

A limited partner can force the dissolution of a limited partnership even if the other partners want to continue the business.

Question 38

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 39

Because the basic formational structure is the same, it can be relatively easy to convert a general partnership into a limited liability partnership.

Question 40

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 41

Nell is considering forms of business organization for Optic Center, a medical eye clinic. An advantage of a limited liability partnership is that, depending on the applicable state statute, partners can avoid personal liability for

A) their own wrongful acts.
B) any partnership obligation.
C) their own and other partners' wrongful acts.
D) none of the choices.

Question 42

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 43

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) designate a person or group of persons to manage the firm.
C) elect to apply the principles of partnership law to their firm.
D) expressly adopt the corporate form of business organization.

Question 44

Jess, Kia, and Len form a partnership to design and test energy storage facilities and equipment. The liability of all partners is limited to the amount of their investments in the firm. This entity is most likely

A) a limited liability partnership.
B) a family limited liability partnership.
C) none of the choices.
D) a limited liability limited partnership.

Question 45

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 46

Fern and Grover wish to combine their professional accountancy practices into a single firm that combines the pass-through tax status and other advantages of a partnership with limits to the personal liability of the partners. The appropriate business organization for this enterprise is most likely

A) a limited liability partnership.
B) a family limited liability partnership.
C) a limited liability company.
D) a limited liability limited partnership.

Question 47

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 48

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 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

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 51

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 52

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 53

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 54

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 55

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 56

Hera, her daughter Inez, and other members of their family wish to operate their family-owned farm as a business organization with pass-through tax status, limits to the personal liability of the participants, and the option to transfer real estate among those parties exempt from real estate taxes. The appropriate business organization for this enterprise is most likely

A) a limited liability partnership.
B) a family limited liability partnership.
C) none of the choices.
D) a limited liability limited partnership.

Question 57

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 58

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 59

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 60

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 61

Del and Efron want to form a limited partnership to do general business bookkeeping with an emphasis on tax accounting. In most states, a limited partnership will be created when Del and Efron

A) file a certificate of limited partnership.
B) execute a partnership agreement.
C) accept their first client.
D) make their capital contributions.

Question 62

Maia, a limited partner in Nano Investors, consults with Odet, the firm's general partner, regarding partnership business. For this activity, Maia is

A) exposed to personal liability for participating in the firm's management.
B) required to dissociate from the business.
C) prohibited from prospectively withdrawing from the partnership.
D) none of the choices.

Question 63

Dain is a limited partner in Eco Baits, a pest control service organized as a limited partnership, which cannot pay its debts. Dain is liable for the debts

A) in proportion to the number of partners in the firm.
B) to no extent.
C) to the extent of his capital contribution to the firm.
D) to the full extent.

Question 64

Paolo, Quito, Reyes, and Sari form Toda el Mundo LP, a limited partnership to import and sell clothing made in remote global locales. In the absence of an agreement among the partners to the contrary, profits will be shared

A) equally among the partners.
B) on the basis of percentages of capital contributions.
C) in the same ratio as losses.
D) on a FIFO-first in, first out-basis.

Question 65

Nature's Power L.P. is a limited partnership dedicated to the research and development of renewable sources of energy. Nature's Power has $100,000 in declared but unpaid profits. Its creditors include Omni Credit Corporation for $5,000 and Pinto, one of Nature's Power's limited partners, also for $5,000. When Quint, one of Nature's Power's general partners, decides to retire, the other general partners vote to liquidate and dissolve the firm. The limited partners, who are not asked their opinions, want Nature's Power to continue in business and file a suit against the general partners to compel this result. Can the court order the firm to continue? If not, what is the priority of the distribution of its assets on dissolution?

Question 66

Development LP is a limited partnership that invests in residential real estate projects. Its limited partners include more than 150 sophisticated investors and investment professionals, including Ethan. Ethan loses his limited liability if he

A) participates extensively in the firm's management.
B) does not participate in the firm's management.
C) invests in a project that the firm has declined.
D) votes to sell or dissolve the firm.

Question 67

Otto is a limited partner in Port Exports, a limited partnership. Otto allows his name to be used in partnership business, contributes services to the firm, and regularly advises Quinn, the general partner, on Port's management. The firm's creditors believe, based on Otto's conduct, that he is a general partner. Otto is liable for Port's obligations

A) in proportion to the number of partners in the firm.
B) to no extent.
C) to the extent of his capital contribution to the firm.
D) to the full extent.

Question 68

Mero, Nico, and Osaka want to form Pharma Sales LLC (limited liability company). What should they provide in their operating agreement? If they fail to include some important operating details, what determines these details?

Question 69

The major features of an LLP are that it limits the personal liability of the partners and

A) it allows the partnership to continue as a pass-through tax entity.
B) LLP statutes do not vary from state to state.
C) it can only do business in the state in which it was formed.
D) only a few states have enacted LLP statutes.

Question 70

Edna, Fiona, and Gwyn form a limited partnership to make and test-market Happy Donuts and other bake-at-home pastries. To avoid a dispute in the event of the firm's dissolution about how its assets should be valued and distributed, and whether the business should be sold, the partners should seek

A) a safe harbor.
B) a buy-sell agreement.
C) a court decree.
D) an impairment circumstance.

Question 71

Jana and Kwan are partners in Lawyers LLP, a limited liability partnership. Jana supervises the firm's associate Milo, who negligently fails to appear in court on behalf of Norm, a client. Liability to Norm rests only with

A) Jana and Milo.
B) Jana.
C) Milo.
D) Jana and Kwan.

Question 72

Brent and Char are limited partners in Dental Center, a limited partnership. In terms of the firm's books and information regarding partnership business, Brent and Char are entitled to

A) access in proportion to their participation in management of the firm.
B) access to the parts that directly relate to their capital contributions.
C) no access.
D) complete access.