Question 1

LLCs were originally created by the

Accepted Answer

A) In 1977, the Wyoming legislature created the initial LLC.
A) In 1977, the Wyoming legislature created the initial LLC.
B) In 1977, the Wyoming legislature created the initial LLC.
C) In 1977, the Wyoming legislature created the initial LLC.

Question 2

Formation of an LLC requires the filing of

Accepted Answer

A) Formation of an LLC occurs with the filing of articles of organization with the
state.
A) Formation of an LLC occurs with the filing of articles of organization with the state.
B) Formation of an LLC occurs with the filing of articles of organization with the state.
C) Formation of an LLC occurs with the filing of articles of organization with the state.

Question 3

Though they may elect a different structure,for tax purposes,LLCs are typically treated as

Accepted Answer

A) LLCs are typically treated as pass-through entities for tax purposes.
A) LLCs are typically treated as pass-through entities for tax purposes.
B) LLCs are typically treated as pass-through entities for tax purposes.
C) LLCs are typically treated as pass-through entities for tax purposes.

Question 4

Personal financial contributions may be required by previous agreement with regard to

Accepted Answer

A) An LLP partnership agreement may allow capital calls requiring individual
partners to make additional capital contributions to the entity.
B) An LLP partnership agreement may allow capital calls requiring individual partners to make additional capital contributions to the entity.
C) An LLP partnership agreement may allow capital calls requiring individual partners to make additional capital contributions to the entity.
D) An LLP partnership agreement may allow capital calls requiring individual partners to make additional capital contributions to the entity.

Question 5

Carlos is a member of an LLC along with three others.After one year,despite their best efforts,the business closes and the bank that extended them a loan sues for repayment.The bank may

Accepted Answer

A) The nature of the LLC is that members are protected from liability absent fraud or
intentional acts and the business entity bears any liability.
D) The nature of the LLC is that members are protected from liability absent fraud or intentional acts and the business entity bears any liability.
E) The nature of the LLC is that members are protected from liability absent fraud or intentional acts and the business entity bears any liability.
F) The nature of the LLC is that members are protected from liability absent fraud or intentional acts and the business entity bears any liability.

Question 6

In 1997,the IRS made LLCs

Accepted Answer

A) Now all states recognize and provide both procedural and internal default rules for LLCs.
M) Now all states recognize and provide both procedural and internal default rules for LLCs.
N) Now all states recognize and provide both procedural and internal default rules for LLCs.
O) Now all states recognize and provide both procedural and internal default rules for LLCs.

Question 7

Typically,day-to-day decision making in a manager-managed LLC is performed by

Accepted Answer

A) Managing members are usually named in the operating agreement to manage the
entity.
J) Managing members are usually named in the operating agreement to manage the entity.
K) Managing members are usually named in the operating agreement to manage the entity.
L) Managing members are usually named in the operating agreement to manage the entity.

Question 8

An LLC offers principals the same liability coverage as that of

Accepted Answer

A) The LLC provides liability protection similar to that offered at a corporate entity
level with pass-through taxation to the principals.
V) The LLC provides liability protection similar to that offered at a corporate entity level with pass-through taxation to the principals.
W) The LLC provides liability protection similar to that offered at a corporate entity level with pass-through taxation to the principals.
X) The LLC provides liability protection similar to that offered at a corporate entity level with pass-through taxation to the principals.

Question 9

LLPs are formed with the filing of _______ with the proper public official.

Accepted Answer

A) Formation of an LLP occurs with the filing of a statement of qualification with the
state.
A) Formation of an LLP occurs with the filing of a statement of qualification with the state.
B) Formation of an LLP occurs with the filing of a statement of qualification with the state.
C) Formation of an LLP occurs with the filing of a statement of qualification with the state.

Question 10

The origins of LLPs were rooted in protection of

Accepted Answer

A) LLPs were originally designed to protect partners in professional service firm
partnerships.
A) LLPs were originally designed to protect partners in professional service firm partnerships.
B) LLPs were originally designed to protect partners in professional service firm partnerships.
C) LLPs were originally designed to protect partners in professional service firm partnerships.

Question 11

LLPs were created to

Accepted Answer

A) LLPs were created by the Texas legislature to provide limited protection to
general partners.
G) LLPs were created by the Texas legislature to provide limited protection to general partners.
H) LLPs were created by the Texas legislature to provide limited protection to general partners.
I) LLPs were created by the Texas legislature to provide limited protection to general partners.

Question 12

The ability to distribute earnings without incurring double-level taxation is an advantage of a

Accepted Answer

A) A pass-through entity enjoys the ability to distribute earnings without incurring
double-level taxation.
A) A pass-through entity enjoys the ability to distribute earnings without incurring double-level taxation.
B) A pass-through entity enjoys the ability to distribute earnings without incurring double-level taxation.
C) A pass-through entity enjoys the ability to distribute earnings without incurring double-level taxation.

Question 13

The first LLP legislation was enacted in

Accepted Answer

A) Texas passed the first legislation recognizing LLPs in 1991.
B) Texas passed the first legislation recognizing LLPs in 1991.
C) Texas passed the first legislation recognizing LLPs in 1991.
D) Texas passed the first legislation recognizing LLPs in 1991.

Question 14

Several people have decided to go into business as an LLC.To cover all contingencies,they want to specify what constitutes an act of dissociation and outline the procedures upon dissolution.This information would be included in

Accepted Answer

A) The operating agreement is the document in which members define acts
constituting dissociation and specify dissolution procedures.
\) The operating agreement is the document in which members define acts constituting dissociation and specify dissolution procedures.
]) The operating agreement is the document in which members define acts constituting dissociation and specify dissolution procedures.
^) The operating agreement is the document in which members define acts constituting dissociation and specify dissolution procedures.

Question 15

Voting rights of LLC principals are governed by

Accepted Answer

A) The operating agreement sets out the operating principles of the LLC, including
the principal's voting rights.
S) The operating agreement sets out the operating principles of the LLC, including the principal's voting rights.
T) The operating agreement sets out the operating principles of the LLC, including the principal's voting rights.
U) The operating agreement sets out the operating principles of the LLC, including the principal's voting rights.

Question 16

Currently,LLPs are often used to protect family businesses as they provide a way to resolve

Accepted Answer

A) Originally designed for protection of professional firms, the LLP is now
frequently used by family businesses to resolve issues regarding transition of the business between generations.
_) Originally designed for protection of professional firms, the LLP is now frequently used by family businesses to resolve issues regarding transition of the business between generations.
`) Originally designed for protection of professional firms, the LLP is now frequently used by family businesses to resolve issues regarding transition of the business between generations.
a) Originally designed for protection of professional firms, the LLP is now frequently used by family businesses to resolve issues regarding transition of the business between generations.

Question 17

Burt has gone to a commercial bank to negotiate a loan for the LLC in which he is a member.He tells the bank that he is authorized to act on behalf of and to bind the company.What is the best way for the bank to verify whether Burt does in fact have the authority he claims?

Accepted Answer

A) If the LLC is member-managed, nothing would need to be done; however, if it is manager-managed, Burt must be a named manager. Checking the articles of organization, available to the public, for the management structure and Burt's authority is the best way to verify Burt's claims.
P) If the LLC is member-managed, nothing would need to be done; however, if it is manager-managed, Burt must be a named manager. Checking the articles of organization, available to the public, for the management structure and Burt's authority is the best way to verify Burt's claims.
Q) If the LLC is member-managed, nothing would need to be done; however, if it is manager-managed, Burt must be a named manager. Checking the articles of organization, available to the public, for the management structure and Burt's authority is the best way to verify Burt's claims.
R) If the LLC is member-managed, nothing would need to be done; however, if it is manager-managed, Burt must be a named manager. Checking the articles of organization, available to the public, for the management structure and Burt's authority is the best way to verify Burt's claims.

Question 18

Which of the following is not a characteristic of an LLC?

Accepted Answer

A) In an LLC, both managing members and controlling members owe a fiduciary
duty to other members.
Y) In an LLC, both managing members and controlling members owe a fiduciary duty to other members.
Z) In an LLC, both managing members and controlling members owe a fiduciary duty to other members.
[) In an LLC, both managing members and controlling members owe a fiduciary duty to other members.

Question 19

The ability to flow through to the investors the tax deductions and losses that are typically generated by an emerging company or a company with significant up-front debt is an advantage of a

Accepted Answer

A) Pass-through entities enjoy the ability to flow through to the investors the tax
deductions and losses that are typically generated by an emerging company or a company with significant up-front debt.
A) Pass-through entities enjoy the ability to flow through to the investors the tax deductions and losses that are typically generated by an emerging company or a company with significant up-front debt.
B) Pass-through entities enjoy the ability to flow through to the investors the tax deductions and losses that are typically generated by an emerging company or a company with significant up-front debt.
C) Pass-through entities enjoy the ability to flow through to the investors the tax deductions and losses that are typically generated by an emerging company or a company with significant up-front debt.

Question 20

With regard to taxation,LLPs are treated as

Accepted Answer

A) LLPs are treated as pass-through organizations for tax purposes.
A) LLPs are treated as pass-through organizations for tax purposes.
B) LLPs are treated as pass-through organizations for tax purposes.
C) LLPs are treated as pass-through organizations for tax purposes.

Quiz 14: Limited Liability Companies and Limited Liability Partnerships