Question 1

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

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The answer of Nell is considering forms of business organization...

Question 2

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

Accepted Answer

Glassworks can adopt the contract through novation, which involves substituting a new party for Hans in the contract. This would release Hans from any contractual obligations, and Glassworks would become responsible for fulfilling the terms of the agreement with Interstate Transport Company.

Question 3

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

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Question 4

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

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The answer of Jess, Kia, and Len form a partnership...

Question 5

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

Accepted Answer

In some states, it is required that a limited liability company must have at least two members to be formed. Therefore, option C is the best choice. Options A, B, and D are not necessary requirements for forming an LLC in any state.

Question 6

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

Accepted Answer

A limited liability partnership (LLP) allows the partners to enjoy the pass-through tax status of a partnership while also having their personal liability limited. Each partner's liability is limited to the amount of their investment in the partnership, and they are not personally liable for the debts of the partnership. This is an appropriate business organization for Fern and Grover's professional accountancy practices, as it combines the advantages of a partnership with the limits to personal liability. Family limited liability partnerships and limited liability limited partnerships are not appropriate as they have specific requirements and are typically used for different purposes. While a limited liability company (LLC) also offers the advantages of limited liability for its owners, it may not be the best choice for Fern and Grover as it has more complex taxation rules compared to an LLP.

Question 7

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

Accepted Answer

For federal jurisdictional purposes, a limited liability company (LLC) is considered a citizen of every state of which its members are citizens. This is because, unlike corporations, which are treated as separate legal entities with a specific citizenship, the citizenship of an LLC is determined by the citizenship of its members.

Question 8

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

Accepted Answer

Most states follow the federal rules for taxing limited liability companies (LLCs), treating them as pass-through entities unless they elect to be taxed as corporations.

Question 9

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

Accepted Answer

In the absence of any specification in the articles of organization, a limited liability company is typically assumed to be member-managed. This means that the members of the LLC are responsible for the day-to-day management of the company.

Question 10

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

Accepted Answer

As a member of Masonry LLC who significantly contributed to the firm's fraud, Nicole can be held personally liable for any resulting damages. This means she may be required to pay damages out of her own personal assets, not just her investment in the firm.

Question 11

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

Accepted Answer

According to the principle of comity, one state's courts must interpret and apply another state's laws when dealing with a foreign limited liability company. This can result in inconsistent treatment as different states may have different laws or interpretations of laws that apply to the same company.

Question 12

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

Accepted Answer

Ohio will apply the law of the state where the foreign limited liability company was formed.

Question 13

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

Accepted Answer

In the absence of a written operating agreement specifying how profits should be divided, most LLC statutes default to dividing profits equally among the members, regardless of their proportionate investment or ownership in the company.

Question 14

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

Accepted Answer

When a member dissociates from a firm, their duty of care still remains with respect to prior events. This means that they are still responsible for any actions they took while they were a member of the firm, even if they are no longer associated with it. The other choices are incorrect because the duty of loyalty ends upon dissociation, the right to participate in management and act as an agent for the firm may be lost depending on the terms of the partnership agreement.

Question 15

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

Accepted Answer

In a member-managed LLC, all decisions related to the firm's business are made by a majority vote of the members, unless the LLC operating agreement specifies otherwise. Therefore, option A is the best choice.

Question 16

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

Accepted Answer

A family limited liability partnership (FLLP) is designed for family businesses, such as a family-owned farm. FLLP provides pass-through tax status, gives members limited liability, and allows for the transfer of real estate among family members free from real estate taxes. It also allows for flexibility in management and ownership among family members. Limited liability partnership (LLP) and limited liability limited partnership (LLLP) are also good choices for businesses with multiple owners, but they may not have the same benefits as an FLLP for a family-owned business.

Question 17

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

Accepted Answer

As a foreign investor, Global Capital S.A. can become a member of a limited liability company in the United States. This means they can have ownership and a share in the profits, as well as participate in the management of the company. However, there may be certain restrictions and requirements for foreign investors, such as obtaining certain licenses or approvals.

Question 18

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

Accepted Answer

A limited liability company (LLC) with only one member is automatically considered a disregarded entity for federal income tax purposes, meaning it is taxed as a sole proprietorship unless it elects to be taxed as a corporation. Since Conrad is the sole member, the LLC would be taxed as a sole proprietorship by default.

Question 19

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

Accepted Answer

As a limited liability company, Grape Vineyards LLC is considered a legal person in the eyes of the law. This means it can hold property and enter into contracts separate from its members, while also providing liability protection to those members.

Question 20

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

Accepted Answer

A limited liability company (LLC) that wants to distribute profits to its members could avoid "double taxation" by electing to be taxed as a partnership. This enables the LLC to avoid corporate income tax and instead, passes through profits and losses to the members for taxation on their personal income tax returns. The LLC would only be subject to one level of taxation, unlike a corporation which is taxed on its profits and again on dividends distributed to shareholders.

Quiz 17: Limited Liability Business Forms