Deck 42: LPs, LLCs, and LLPs

Question 1

Courts tend to resolve ambiguities in limited partnership agreements against the general partners.

Answer 1

True

Question 2

Under the RULPA, limited partners may engage in certain "safe harbor" activities without losing their protection from liability.

Answer 2

True

Question 3

Limited liability is not a feature of general partnership law.

Answer 3

True

Question 4

Every limited partnership must have at least one general partner.

Question 5

While most states have adopted limited liability company statutes, few states have created statutes allowing the formation of limited liability partnerships.

Question 6

A limited partner may bring a derivative claim against the limited partnership.

Question 7

The rules for dissolution of a limited partnership are the same as those of a general partnership.

Question 8

Limited partners are personally liable for debts of the business.

Question 9

An LLC is a separate legal entity that pays federal income tax.

Question 10

If a limited partnership certificate is never filed, all partners are treated as general partners.

Question 11

The names of limited partners and investors must be included on the certificate of limited partnership.

Question 12

Limited partners may contribute only cash as their capital contributions.

Question 13

In a limited partnership, limited partners are not responsible for the debts of the firm if they engage in management activities.

Question 14

If an owner discloses he is an agent of an LLC, he will not be personally liable for the debts and obligations of the entity.

Question 15

Both general partnerships and limited partnerships are created only through the process of executing a certificate.

Question 16

Limited partners may sue their partnership's general partner to protect the limited partners' interest.

Question 17

It is impossible to form a business in a manner that allows for single taxation and limited liability.

Question 18

A limited partner loses his limited liability when she becomes a contractor for the limited partnership, or the general partner.

Question 19

A limited partner can never lose money.

Question 20

The general partner of a limited partnership may be a corporation.

Question 21

An LLC is a legal entity with the authority to conduct business in its own name.

Question 22

When no LP certificate is filed, what is the result?

A) Only limited partners are fully liable.
B) Only general partners are fully liable.
C) Limited partners retain their limited liability.
D) Both general and limited partners are fully liable.

Question 23

Managers of an LLC have the same fiduciary duties to the entity as corporate officers have to a corporation.

Question 24

Each limited partner in a limited partnership has all of the following rights and benefits, except:

A) A share of the profits.
B) The right to sue the general partner to protect the limited partners' interest.
C) The right to manage the limited partnership.
D) The right to vote on dissolution of the limited partnership.

Question 25

The dissolution and winding up of a limited partnership is governed by the same principles applicable to a: __________.

A) "subchapter S" corporation.
B) limited liability company.
C) general partnership.
D) limited liability partnership.

Question 26

The partners who manage the limited partnership and are personally liable for the firm debts are called the __________ partners.

A) general
B) active
C) licensed
D) unreserved

Question 27

LLC promoters can 'shake hands' and form an LLC.

Question 28

An LLC may be managed directly by its owners.

Question 29

An LLC may be formed without filing formal articles of organization with the secretary of state.

Question 30

LLP statutes are designed to permit the conversion of existing general partnerships into limited liability partnerships.

Question 31

An LLC is a separate legal entity and may own property in its own name.

Question 32

Management of an LLC is vested in its:

A) members
B) partners
C) shareholders
D) managers

Question 33

Under the RULPA, a limited partner probably will not lose his limited liability in any of the following circumstances unless: ______.

A) the limited partner becomes a contractor for, or an agent or employee of, the limited partnership or of a general partner.
B) the limited partner consults with and advises a general partner regarding the partnership business.
C) the limited partner votes on partnership matters, such as dissolving and winding up the limited partnership or removing a general partner.
D) the partners fail to file a limited partnership certificate.

Question 34

Owners of an LLC are known as shareholders.

Question 35

An protects partners from liability for the wrongful acts of those whom they directly supervise and control.

Question 36

An LLC is essentially identical to a subchapter S corporation.

Question 37

A limited partnership can be formed by one (1) or more __________ partners and one (1) or more __________ partners.

A) unreserved; reserved
B) active; silent
C) licensed; unlicensed
D) general; limited

Question 38

The spread of LLC's resulted from:

A) a United States Supreme Court decision.
B) an Internal Revenue Service ruling.
C) a Wyoming Supreme Court decision.
D) a Securities and Exchange Commission ruling.

Question 39

Under the RULPA, a limited partner may contribute: ______.

A) cash only.
B) property only.
C) services only.
D) cash, property, and services.

Question 40

All of the following statements regarding LP's are not true, except: _______.

A) The words limited partnership or simply LP must appear in the firm's name.
B) General partners cannot avoid personal liability by incorporating.
C) Limited partners can lose their liability limitation if they participate in the control of the business.
D) If sued, limited partners can lose more than their capital investment.

Question 41

Members of a limited liability company share profits:

A) according to their status (general or limited) in the firm.
B) in proportion to their contribution of services.
C) in proportion to their capital contribution.
D) according to the terms of the operating agreement.

Question 42

Alice, Betty, and Cathy are interested in forming a business venture. Alice is quite wealthy and is ready to contribute money to the venture. Betty has a degree in business from an excellent university, worked for five years as a manager in a major corporation, and currently is a leadership/management consultant. Cathy is a scientist who has developed a process that will, according to her, "revolutionize cancer treatment throughout the world." Alice, Betty, and Cathy believe it is in their best interest to form a general partnership. Do you agree? Is there a more appropriate form of business you might recommend?

Question 43

The owners of a limited liability company are known as: ______.

A) members.
B) partners.
C) contributors.
D) electors.

Question 44

A court can disregard the LLC entity to hold one or more members personally liable in any of the following situations, except: _______.

A) when members fail to follow formalities.
B) when members commingle company and personal funds.
C) when members ignore the articles of organization.
D) when members vote to make substantive changes to the operating agreement.

Question 45

A creditor's right against a member's interest in an LLC is limited to a(n) _______ order, and the creditor with such an order has only the rights of an assignee of an interest in an LLC.

A) dissolution
B) compliance
C) assignment
D) charging

Question 46

Like a general partnership, LLC's are dissolved by all of the following situations except: _______.

A) by the consent of the members.
B) upon the death of a member.
C) upon the expulsion of a member.
D) when a derivative suit is filed.

Question 47

You are asked to provide two friends who are in business together with advice regarding what they need to do to legally in order to form a limited liability company. Although your friends like the general notion of limited liability in the operation of their business, they are totally unfamiliar with the legal processes for forming a LLC, so you need to provide them with the basic requirements for LLC creation. What specific advice would you give them?

Question 48

All of the following statements concerning LLC's are incorrect except: ______.

A) Federal income tax is due on its income as an entity.
B) Income flows through to the members based on their proportionate interests in the company.
C) No filing is necessary to form a limited liability company.
D) All members enjoy unlimited liability.

Question 49

Which form of business entity was created primarily to professionals from malpractice liability generated by other owners in the firm?

A) the limited partnership
B) the limited liability partnership
C) the limited liability company
D) the general partnership

Question 50

A limited liability company: ______.

A) is the same type of business entity as a "Subchapter S" corporation.
B) has no restriction on the number of owners.
C) is taxed in a manner similar to that of a corporation.
D) has unlimited life regardless of what happens with any individual member.

Question 51

A limited liability company may be classified as a partnership for tax purposes if:

A) such an election is made by "checking the box" for partnership tax treatment on the appropriate Internal Revenue Service form.
B) such an election is made in the operating agreement.
C) such an election is made in the articles of incorporation.
D) a majority of its members petition the Internal Revenue Service for partnership tax treatment.

Question 52

In every state, LLP partners remain ______ liable for their own negligence with ______ liability for the wrongful acts of those whom they directly supervise and control.

A) personally, partial
B) fully, partial
C) fully, unlimited
D) contributorily, unlimited