Deck 29: Limited Liability Partnerships and Limited Liability Companies

Question 1

The process when an individual member of an LLC exercises the right to withdraw from the partnership is called __________.

A) Dissociation
B) Disaffiliation
C) Disaffirmance
D) Dissonance

Answer 1

Dissociation

Question 2

Bob is an owner in an LLC which makes him a __________.

A) Leader
B) Officer
C) Member
D) Primary

Answer 2

Member

Question 3

LLC laws define dissolution of an LLC as a __________ process.

A) Wind up
B) Termination
C) Foreclosure
D) Liquidation

Answer 3

Liquidation

Question 4

LLCs are frequently governed by an agreement of the parties called an LLC agreement or

A) Bylaw
B) Operating agreement
C) Partnership agreement
D) UCC-1 report

Question 5

LLCs were originally created by the Wyoming legislature in

A) 1894.
B) 1929.
C) 1977.
D) 2002.

Question 6

All of the following are characteristics of an LLC, except

A) An LLC is easy to start up.
B) An LLC has pass through taxation.
C) An LLC has simple capitalization procedures.
D) An LLC has limited liability of the owners.

Question 7

Frances wants to start a new small business and is seeking advice as to which type of entity would best suit his needs. His business has a high potential for liability and therefore he wants to protect his personal assets, but he does not want to spend a lot of time, effort or money in starting the business up or continuing the management of it. Additionally, he is looking for an entity that would give him the best tax advantages. Which type of business organization would suggest?

A) Sole proprietorship
B) Limited liability corporation
C) Limited liability company
D) Limited liability partnership

Question 8

All of the following statements about the Uniform Limited Liability Company Act are correct except

A) It is a model statute designed to promote uniformity among the states.
B) Its application varies greatly from state to state.
C) It was created by federal statute.
D) It is the early version of LLC formation and organization law.

Question 9

After the ULLCA was created, some states have started to adopt an act that modifies it called

A) Revised Uniform Limited Liability Company Act
B) Revised Limited Company Formation Act
C) Reformed Limited Liability Corporation Act
D) Reform Limited Company Act

Question 10

All of the following statements about the RULLCA are correct, except

A) It was published in amended form in 2013.
B) It has been adopted by all of the states.
C) It clarifies handling of deadlocks and rights of departing matters.
D) It modifies the operating agreement.

Question 11

The main goal of both the ULLCA and the RULLCA is

A) To simplify capitalization procedures
B) To ensure that business is conducted ethically
C) To ensure that owners have limited liability
D) To promote uniformity among various state LLC laws.

Question 12

Evan wishes to start an LLC that will do business in Florida, Vermont and Alaska. In which state(s) must he file the articles of organization?

A) All three states
B) Only one of the three states
C) In the states where the business earns at least 15 percent of its profit.
D) In none of the states as an LLC has no filing requirements for start-up.

Question 13

All of the following are generally required to be included in the articles of organization except

A) Name of the LLC
B) The location of its principal place of business
C) The names of the owners
D) The bylaws of the LLC

Question 14

Another name for articles of organization is

A) Articles of incorporation
B) Certificate of organization
C) Principal place of business
D) Registration of organization

Question 15

Corey wishes to start up a railroad reconstruction business called, "Oh Susanna Railroads" with his good friends Mike and Fred. In order to pursue this the business will need to secure a substantial amount of money which is far beyond their own personal assets or creditworthiness. He recently approached you asking if an LLC would be the best option for their business given that the owners of an LLC have limited liability. Which statement below would be the most accurate answer to Corey's inquiry?

A) While an LLC does have limited liability, given the fact that Corey specifically stated he will need to raise a lot of money, an LLC has limited capitalization methods and may be difficult to raise the required amount needed.
B) An LLC is the only option of a business entity that will give the owners limited liability and therefore is his only realistic option.
C) An LLC cannot be formed by more than one person and therefore, given the fact that he wants to go into business with his friends, it cannot be an LLC.
D) An LLC is the best option to achieve Corey's goals as capitalization is very simple process for LLCs.

Question 16

Which terms means to raise funds for a business?

A) Optimization
B) Fiduciary
C) Capitalization
D) Refinancing

Question 17

All of the following listed below are methods for capitalizing LLCs except

A) Securing a loan through a private lender.
B) Selling share of stock.
C) Securing a loan through a commercial lender.
D) Selling equity ownership in the LLC itself.

Question 18

What is the function of an LLC operating agreement?

A) To determine which set of uniform laws the LLC will apply.
B) To limit the liability of the owners.
C) To set out the structure and internal rules for the entity.
D) To ensure that a strong code of ethics is established.

Question 19

Similar to the board of directors in a corporation, an LLC may have

A) Executive officers
B) Principals
C) Controlling shareholder
D) Managing members

Question 20

In an operating agreement, should one of the members die, what will be the effect?

A) The LLC will always dissolve by operation of law.
B) The operating agreement can specify what effect it will have.
C) The LLC will operate perpetually by operation of law.
D) The courts will issue a judicial decree of the status of the LLC.

Question 21

ABC LLC's operating agreement is silent on several important issues involving management structure and organization. Therefore, what will the effect of these gaps be?

A) The LLC will fail due to specificity of the operating agreement.
B) The courts will determine on a case by case basis the missing issues.
C) Common law will govern any gaps in coverage of the operating agreement.
D) The LLC statute of the state in which it is organized will apply its default rules.

Question 22

The type of LLC that is similar to that of a general partnership with all the members having the authority to bind the business is called a(n)

A) Member-managed LLC
B) Manager-managed LLC
C) Equal-managed LLC
D) Equitable-managed LLC

Question 23

Fred, Mike, Reid and Connor create Double Done LLC, a family recreation center. Their operating agreement specifically states that Mike will make the day to day decisions and that Fred, Reid and Connor will have little input except for major decisions. This type of LLC is

A) Member-managed LLC
B) Manager-managed LLC
C) Equal-managed LLC
D) Equitable-managed LLC

Question 24

The operating agreement must determine if the LLC is a member-managed LLC or a manager-managed LLC so that third parties can

A) Determine what the tax consequences each member will face at the end of the fiscal year.
B) Determine the financial stability of the LLC.
C) Determine who has the authority to make day to day decisions that bind the LLC.
D) Determine who has unlimited liability.

Question 25

Cyndy, Shelby, Kennedy and Kristin formed Double Dawn Paddle Board Yoga LLC as a manager-managed LLC naming Kennedy as the managing member. A local yogurt entrepreneur approaches Shelby offering to be the exclusive provider of pink yogurt for their company to give out after their yoga sessions. Loving pink yogurt, Shelby signs a 10 year contract whereby only their pink yogurt will be provided for their company. When Cyndy, Kennedy and Kristin find out what Shelby has done, they are furious and do not want to be bound by the 10 year contract Shelby signed as they all prefer blue yogurt. What most likely will be the outcome of this scenario?

A) They will all have to honor the 10 year contract of pink yogurt as Shelby's actions will bind the LLC.
B) The court will determine by judicial decree that the contract of 10 years is excessive and exceeds the scope of reasonableness and will therefore declare the contract unenforceable.
C) The contract will be declared unenforceable as all LLC contracts require the signature of all members to be enforceable.
D) The contract will not bind the LLC since Shelby did not have the authority to enter into a contract that binds the LLC.

Question 26

The RULLCA changes the term managing member to

A) Ruling party
B) Authorized representative
C) Managing principal
D) Controlling fiduciary

Question 27

In AK-Feel, LLC v. NHAOCG, the court determined

A) An operating agreement cannot eliminate fiduciary duties of the managing members.
B) An operating agreement can eliminate fiduciary duties of the shareholders.
C) In order to eliminate the fiduciary duties of the managing members the language of the operating agreement must be clear and unambiguous.
D) Managing members of an LLC automatically do not have any fiduciary duties unless an operating agreement creates one.

Question 28

LLCs members have

A) Unlimited liability
B) Limited liability
C) Shared liability
D) Equal liability

Question 29

Limited liability means that

A) The LLC's liability is limited to that which is not covered by insurance.
B) The owners' liability is limited to their non-exempt personal assets.
C) The owners' personal assets are insulated from any business debts or liability if the LLC fails.
D) The liability of the owners is limited if the conduct of the LLC is criminal.

Question 30

Phoenix Bookstore, LLC with four members incurs substantial debt due to a downturn in book purchases. At the end of the fiscal year they are $100,000.00 in debt. For how much will each of the four member be personally liable?

A) $25,000 each
B) The amount owed by each member will be in proportion to the percentage of ownership.
C) Each member would be personally responsible until all the debt is paid even if it means that some members have to pay more than others.
D) Nothing.

Question 31

A pledge from LLC members of personal assets to guarantee payment obligations of the business venture is called a(n)

A) Personal guarantee
B) Unlimited guarantee
C) Commercial guarantee
D) Corporate guarantee

Question 32

Which of the following is a time when limited liability of the personal assets of members of an LLC may be waived?

A) When the LLC loses money.
B) When the members engage in fraud.
C) When the creditors need the assets.
D) When the members have sufficient funds to cover the debt.

Question 33

Cayman Travel LLC is in debt $100,000. Realizing the LLC is about to go out of business, two of the members withdraw all of the remaining money from the business savings account and distribute it equally to the members. This is an example of

A) Equitable distribution
B) Fiduciary distribution
C) Improper distribution
D) Financial distribution

Question 34

When an LLC is insolvent any distribution of money made will be called

A) Equitable distribution
B) Fiduciary distribution
C) Improper distribution
D) Financial distribution

Question 35

Pass-through taxation avoids __________ that corporations face.

A) Punitive damages
B) Compensatory fee
C) Double taxation
D) Dividend taxation

Question 36

All of the following statements are true about double taxation except

A) It is a tax imposed on the business entity.
B) It is a tax imposed on the members.
C) It is the tax treatment of corporation.
D) An LLC cannot face double-taxation.

Question 37

Linda, Nancy and Pam started an LLC two years again. Nancy wishes to now leave the LLC. This process is called

A) Dissolution
B) Dissociation
C) Dissolvement
D) Disbandment

Question 38

In the case, Kirksey v. Grohmann, because the members could no longer communicate regarding the LLC except through legal counsel, and faced deadlock, the court ordered

A) A forced dissociation
B) A forced disolvement
C) A forced dissolution
D) A forced dismemberment

Question 39

A dissolution occurs

A) When the shareholders vote to do so.
B) When one of the members decides to do so.
C) When triggering event that is specified in the agreement occurs.
D) When the law requires it.