Deck 15: Limited Liability Companies, Limited Liability Partnerships,

Question 1

The creation of an LLC is pursuant to laws enacted by the ________ government.

A) federal
B) county
C) state
D) local township

Answer 1

state

Question 2

The ________ codifies LLC laws and tries to establish comprehensive LLC law that is uniform throughout the United States.

A) Model LLC Statute
B) Uniform Limited Liability Company Act (ULLCA)
C) Williams Act
D) Smoot Hawley Act

Answer 2

Uniform Limited Liability Company Act (ULLCA)

Question 3

An operating agreement can be oral.

Answer 3

True

Question 4

Jasmin, Shou-Yi, and Vanessa form an LLC, and each contributes $25,000 in capital. The LLC operates for a period of time, during which it borrows money from banks and purchases goods on credit from suppliers. After some time, the LLC experiences financial difficulties and goes out of business. If the LLC fails with $500,000 in debts, which of the following is an accurate statement regarding the liability of Jasmin, Shou-Yi, and Vanessa?

A) Each will lose her capital contribution of $25,000, but will not be personally liable for the rest of the unpaid debts of the LLC.
B) Each will lose her capital contribution of $25,000, and will be personally liable for the rest of the unpaid debts of the LLC.
C) Each will not be personally liable for the $500,000 in debts, and will be reimbursed for her $25,000 capital contribution.
D) Each will not be personally liable for the $500,000 in debts, and a constructive trust for the entire $75,000 in capital contributions will be imposed so that Jasmin, Shou-Yi and Vanessa can form a new business venture.

Question 5

John, Nathan, and Julio form JNJ, LLC, with equal capital investment each. On his way to a business meeting with clients of JNJ, Nathan accidentally injures Jessica in a car accident. Which of the following is true in this scenario?

A) Jessica can claim damages from JNJ, LLC, as she was injured in the ordinary course of business.
B) Jessica can only claim damages from Nathan and not from JNJ, LLC.
C) Jessica can choose to claim damages from any one of the three partners.
D) John, Nathan, and Julio have equal personal liability for Jessica's injuries.

Question 6

Briefly discuss the liability of an LLC, its members, and its managers for contract obligations of an LLC.

Question 7

Mary, Harold, Harvey, and William form an LLC by contributing $20,000, $50,000, $55,000, and $150,000, respectively. The LLC is designated to be member-managed. When a decision is put to vote, Mary, Harvey, and Harold vote "yes," whereas William votes "no."
Which of the following is true in this context?

A) William's decision prevails as he has invested the maximum capital.
B) No conclusion can be derived as the vote is not unanimous.
C) Mary, Harvey, and Harold's decision prevails due to simple majority.
D) The decision is put to vote among employees of the company.

Question 8

In a ________ LLC, each member has equal rights in the management of the business of the LLC, regardless of the size of his or her capital contribution.

A) manager-managed
B) manager-membered
C) member-membered
D) member-managed

Question 9

A nonmanager member of a ________ LLC is treated equally to a shareholder in a corporation.

A) manager-managed
B) nonmanager-membered
C) member-nonmembered
D) member-managed

Question 10

A company operating its business as a(n) ________ cannot have more than 100 shareholders.

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

Question 11

A provision in an LLC's operating agreement that provides for the continuation of the LLC upon the withdrawal of a member or other specified event is called a(n) ________.

A) continuation agreement
B) survivorship clause
C) anti-dissipation agreement
D) contingency proviso

Question 12

Outline the steps necessary for a partnership to become a Limited Liability Partnership (LLP).

Question 13

Fred Adzum, CPA and Bill Subtraxem, CPA formed the accounting firm Adzum & Subtraxem, LLP. A former client of Fred's is suing Fred and the firm for accounting malpractice. If the former client is successful in his lawsuit, and Fred is found to have committed malpractice, what could this mean to the personal assets of Fred and Bill?

A) Both Fred and Bill would be personally liable, jointly and severally.
B) Fred would be personally liable due to his conduct; Bill may lose his capital contribution to the firm, but his personal assets would be shielded.
C) As the firm is an LLP, the personal assets of both Bill and Fred would be shielded.
D) Fred would be personally liable due to his conduct; both Bill's capital contribution to the firm and his personal assets would be shielded.

Question 14

Why has the advent of the limited liability partnership changed the form of organization under which many large accounting firms operate?

Question 15

During the process of winding up an LLP, after an LLP's assets have been liquidated and reduced to cash, the proceeds are distributed in the following order:

A) First, partners who are creditors, then other creditors, and finally settlement of partners' accounts.
B) First, creditors, then settlement of partners' accounts. Partners who are creditors take nothing.
C) First, creditors (including partners who are creditors), then settlement of partners' accounts.
D) First, settlement of partners' accounts, then partners who are creditors, and finally other creditors.

Question 16

Ubiquitous Enterprises is a franchisee of the HotPan chain of restaurants. One afternoon Linda, an employee of Ubiquitous Enterprises, is mopping the floor. Gary, a customer who enters the restaurant, is talking on his cell phone and does not notice Linda mopping the floor. He slips on the wet floor while walking to the counter and is injured. Which of the following statements is accurate regarding liability for Gary's injury?

A) HotPan is liable for not providing a "Caution: Wet Floor!" sign.
B) Ubiquitous Enterprises is liable for not having its own "Caution" sign.
C) Both HotPan and Ubiquitous Enterprises are jointly and severally liable.
D) Neither HotPan nor Ubiquitous Enterprises is liable.

Question 17

In an area franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor. The area franchisee is called a ________.

A) subfranchisor
B) subfranchisee
C) submaster franchisor
D) francheezie

Question 18

In pursuing a joint venture, many joint venturers form a corporation to operate the joint venture. This is called a ________.

A) joint venture corporation
B) joint general corporation
C) joint alliance corporation
D) franchising cooperative

Question 19

Joint venturers owe each other ________.

A) nothing
B) a duty of confidentiality
C) a duty to keep an accounting and to share profits evenly
D) the fiduciary duties of loyalty and care

Question 20

Briefly describe what is meant by a joint venture. Compare and contrast a joint venture with a traditional partnership.

Question 21

A strategic alliance is NOT intended to allow the companies involved to ________.

A) reduce risks
B) share costs
C) restrain trade
D) combine technologies