Deck 30: Limited Liability Companies and Limited Liability Partnerships

Question 1

Which of the following is true of an LLC?

A) An LLC is a creature of federal law.
B) An LLC is regarded a separate legal entity.
C) An LLC cannot hold title to or transfer property.
D) The owners of an LLC are called general partners or specific partners.

Answer 1

B

Question 2

An LLC differs from a sole proprietorship in that it ________.

A) gives nonmanager members rights to manage a manager-managed LLC's business affairs
B) is less complex and costly to form than a sole proprietorship
C) can be owned by one owner in most states and can thus obtain limited liability
D) requires at least one member who is personally liable for the obligations of the partnership

Answer 2

C

Question 3

Which of the following is true of an LLC formation?

A) Doctors and lawyers cannot operate practices as LLCs.
B) An LLC has to be organized in every state that it operates.
C) "Inc." and "Ltd." can both be used to denote an LLC.
D) An LLC can conduct business only in the state where it is organized.

Answer 3

A

Question 4

Which of the following is true of operating an LLC?

A) An LLC has to file a form with the IRS to obtain flow-through taxation.
B) An LLC can have any number of member-owners.
C) An LLC cannot have shareholders other than estates, certain trusts, and individuals.
D) An LLC cannot have nonresident alien member-owners.

Question 5

In states where an LLC may be organized by only one member,________ can obtain the benefit of the limited liability shield of an LLC.

A) LLPs
B) sole proprietors
C) S corporations
D) C corporations

Question 6

Which of the following is true of LLPs?

A) LLPs are creatures of federal law.
B) The state legislature does not have the authority to amend LLP statutes.
C) Articles of limited liability partnership are statutes that regulate the operation and dissolution of LLPs.
D) Nonprofessionals cannot use the LLP form of partnership.

Question 7

Which of the following is true of LLC taxation?

A) An LLC is taxed as a corporation in all general cases.
B) An LLC can be taxed only as a partnership.
C) Members of an LLC are subject to double taxation.
D) An LLC is not taxed at the entity level.

Question 8

Sam Muller and Toby Richardson organize an LLC in the state of Delaware.In the articles of organization,they specify the duration of the LLC as "25 years from the date of filing the articles of organization." Which of the following is true in this context?

A) The LLC is invalid, as it does not specify a date of termination.
B) The LLC may be dissolved at will any time after 25 years from the date of filing the articles of organization.
C) Muller and Richardson have organized a valid term LLC.
D) Muller and Richardson have organized an at-will LLC.

Question 9

Which of the following characteristics of an LLC is similar to that of limited partnerships and S corporations?

A) An LLC has flow-through taxation.
B) An LLC does not have to file a form with the IRS to obtain flow-through taxation.
C) An LLC can have more than one class of stock, thereby permitting a more complex capital structure.
D) An LLC may not own more than 80 percent of another corporation.

Question 10

The certificate of interest acts the same as a(n)________ issued by a corporation.

A) promissory note
B) stock certificate
C) deposit note
D) initial public offer

Question 11

An LLC is a ________ in the state in which it is organized.

A) sole proprietorship
B) domestic LLC
C) foreign LLC
D) general partnership

Question 12

The ________ is a model act that provides comprehensive and uniform laws for the formation,operation,and dissolution of LLCs.

A) Williams Act
B) Securities Exchange Act
C) ULLCA
D) ULPA

Question 13

Which of the following is true of capital contribution to an LLC?

A) Capital contribution can only be in the form of money or tangible property.
B) Promissory notes are not considered capital contribution.
C) A member's obligation to contribute capital is excused by the member's disability or other inability to perform.
D) A member's obligation to contribute capital is not excused by the member's death.

Question 14

Which of the following refers to a limited liability company that has no specified term of duration?

A) S corporation
B) C corporation
C) term LLC
D) at-will LLC

Question 15

Which of the following refers to a limited liability company that has a specified term of duration?

A) S corporation
B) C corporation
C) term LLC
D) at-will LLC

Question 16

An LLC that was organized in Alabama and is operating in Texas with no operations outside the United States is considered a ________ in Texas.

A) foreign limited liability company
B) limited liability partnership
C) domestic limited liability company
D) general partnership

Question 17

________ refer to the formal documents that must be filed at the secretary of state's office of the state of organization of an LLC to form the LLC.

A) Operating agreements
B) Certificates of interest
C) Articles of organization
D) Articles of amendment

Question 18

A(n)________ refers to a document that evidences a member's ownership interest in an LLC.

A) certificate of interest
B) article of organization
C) statement of interest
D) article of amendment

Question 19

The owner of an LLC is called a ________.

A) general partner
B) limited partner
C) proprietor
D) member

Question 20

Which of the following is true of the ULLCA?

A) It fails to cover problems that arise in the formation and operation of LLCs.
B) It provides uniform laws for the dissolution of LLCs.
C) It has been adopted by all the states as their LLC law.
D) It governs the operation of proprietorships and LLPs.

Question 21

Gerard and Tony organize an LLC by investing $55,000 and $45,000 respectively.The operating agreement states that profits are to be shared in the ratio of 55:45 between Gerard and Tony and makes no mention of sharing losses.The LLC incurs a loss of $100,000 in its first year.How is this loss shared?

A) Both Gerard and Tony have to pay $50,000 each.
B) Gerard pays $55,000 while Tony pays $45,000.
C) Gerard pays $45,000 while Tony pays $55,000.
D) Gerard and Tony are not liable for the losses of the LLC.

Question 22

An LLP must register as a(n)________ in any state in which it wants to conduct its business.

A) C corporation
B) S corporation
C) foreign LLP
D) domestic LLP

Question 23

A term LLC can be continued after the expiration of its term if a(n)________.

A) majority of the members of the LLC vote to continue the LLC as an at-will LLC
B) majority of the members of the LLC vote prior to the expiration date to continue the LLC for an additional specified term
C) amendment to the articles of organization is filed with the United States Secretary of Labor
D) amendment to the operating agreement is filed with the secretary of state

Question 24

Philip and Deborah form an LLC.Philip contributes $50,000 capital,and Deborah contributes $75,000 capital.They do not have an agreement as to how profits are to be shared.If the LLC makes $100,000 profit in its first year,how will the profit be divided among the members?

A) Philip gets $30,000, and Deborah gets $70,000.
B) Philip gets $50,000, and Deborah gets $50,000.
C) Philip gets $25,000, and Deborah gets $75,000.
D) Philip gets $35,000, and Deborah gets $65,000.

Question 25

Which of the following is true of the payment of distributional interest to a disassociating member?

A) An at-will LLC must purchase a disassociated member's distributional interest only if there is a wrongful disassociation.
B) The price and terms of the distributional interest are fixed by the member-managers of the LLC.
C) A term LLC must purchase a disassociating member's distributional interest within a month of the member's notification of the disassociation.
D) Any damages caused to an LLC by wrongful withdrawal must be offset against the purchase price of the disassociating member's distributional interest.

Question 26

________ are the documents that are filed with the secretary of state to wind up an LLC as of the date of filing or upon a later effective date specified in the articles.

A) Articles of limited liability partnership
B) Articles of termination
C) Articles of amendment
D) Articles of organization

Question 27

Which of the following is true of liabilities of LLCs?

A) Members of the LLC are liable to the extent of their capital contribution.
B) Managers of LLCs are personally liable for the debts, obligations, and liabilities of the LLC.
C) LLCs are not liable for any loss or injury caused by their employees.
D) LLCs are not liable for losses caused due to negligence of their managers during the ordinary course of business.

Question 28

Peter,Preston,and Penny organize an LLC in the month of January.While composing the operating agreement,they forget to include the amendment clause.Six months later,the situation demands an amendment to the operating agreement.Which of the following would best apply in this scenario?

A) The operating agreement can be amended if all three members approve.
B) The operating agreement cannot be amended as it contains no amendment provision.
C) The operating agreement can be amended with the affirmative majority of all shareholders.
D) The operating agreement can be amended only 60 days after a new amendment provision is included.

Question 29

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 Melissa in a car accident.Which of the following is true in this scenario?

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

Question 30

Noam,Amar,and Jonas,all doctors,form an LLP.A patient being treated by the LLP passes away due to negligence from Dr.Jonas.The LLP is sued for $5 million by the patient's relatives.Which of the following is true of the given situation?

A) Dr. Jonas alone is personally liable to pay the whole amount.
B) Dr. Jonas alone is personally liable to the patient for an amount equal to his or her capital contribution.
C) All the three doctors are personally liable to pay the whole amount.
D) No legal action can be taken against the LLP or its partners.

Question 31

A ________ is a person who intentionally or unintentionally causes injury or death to another person.

A) protagonist
B) supplanter
C) reversionist
D) tortfeasor

Question 32

A(n)________ refers to an agreement entered into among members that governs the affairs and business of the LLC and the relations among members,managers,and the LLC.

A) certificate of interest
B) article of organization
C) operating agreement
D) article of amendment

Question 33

A(n)________ is a document filed with the secretary of state that gives constructive notice that a member has withdrawn from an LLC.

A) statement of purpose
B) statement of disassociation
C) article of amendment
D) article of termination

Question 34

The conversion of an existing business to an LLC takes effect when ________.

A) the articles of organization are filed with the secretary of state
B) an agreement of amendment is filed with the secretary of state
C) a written operating agreement is prepared by the members
D) the first certificate of interest is issued

Question 35

A member's distributional interest in an LLC is ________ and may be transferred in whole or in part.

A) state property
B) the LLC's property
C) personal property
D) federal property

Question 36

Which of the following best defines the term distributional interest?

A) the ratio in which profit is distributed among members of an LLC
B) the process of distributing profits or losses according the capital investment of the member
C) the constitution of management of the LLC based on the extent of each member's financial investment
D) a member's ownership interest in an LLC that entitles the member to receive money and property from the LLC

Question 37

A member's ownership interest in an LLC is called a ________.

A) certificate of interest
B) distributional interest
C) collateral interest
D) creditor's interest

Question 38

Who among the following is committing wrongful disassociation?

A) A member continues to operate a term LLC even after the expiration of the term.
B) A member withdraws from a term LLC and disassociates himself from his duty of loyalty and duty of care after the expiration of the term.
C) A member withdraws from an at-will LLC even though the operating agreement eliminates a member's power to withdraw.
D) A member disassociates himself from his duty of loyalty and duty of care to an at-will LLC.

Question 39

If a limited liability partnership fails,________.

A) the general partner alone is liable for all the debts and obligations of the partnership
B) the general partner alone is liable for debt equal to his or her capital contribution
C) all the partners are liable for all the debts and obligations of the partnership
D) all partners are liable for debts that amount to their capital contribution

Question 40

Which of the following is true of the profits and losses of an LLC whose operating agreement does not contain profit or loss sharing clauses?

A) A member who invests 10 percent capital must bear 10 percent of the losses.
B) A member who invests 30 percent of the capital receives 15 percent of the profit.
C) A member who invests 20 percent of the capital receives 40 percent of the profit.
D) All members receive equal shares in profits regardless of capital contributed.

Question 41

A ________ of a manager-managed LLC owes no fiduciary duty of loyalty or care to the LLC or its other members and is treated equally to a shareholder in a corporation.

A) newly-appointed manager
B) nonmember manager
C) manager member
D) nonmanager member

Question 42

Which of the following actions requires voting of all the members of a manager-managed LLC?

A) expanding operations to another state
B) admitting new members
C) signing agreements with other businesses
D) expanding operations to another country

Question 43

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 regarding the LLC's business is put to vote,Mary,Harvey,and Harold vote "yes" and 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 44

In a member-managed LLC,________ can bind the LLC to contracts.

A) all members
B) only the member with the highest capital contribution
C) non-member managers
D) every shareholder

Question 45

Sandra,Ben,and Farah form an LLC.They designate the LLC as a manager-managed LLC,and name Ben and a friend named Lily as managers.Sandra enters into a contract to lease equipment on behalf of the LLC.Which of the following is true of the given scenario?

A) The LLC is bound to the contract.
B) Ben and Lily are bound to the contract Sandra entered into.
C) Only Ben, as both member and manager, is bound to the contract entered into by Sandra.
D) The LLC is not bound to the contract entered into by Sandra.

Question 46

Which of the following is true of compensation offered by an LLC?

A) Managers of an LLC are entitled to compensation but not benefits.
B) Members are not entitled to compensation for their services toward the LLC.
C) Members are not indemnified for liabilities in the ordinary course of business.
D) Nonmanager members are not entitled to remuneration for services toward the LLC.

Question 47

Ali is a member of a member-managed LLC.While Ali is driving to a client's office to handle the LLC's business,he hits an old man and severely injures him.The man sues the LLC and recovers $3 million in damages.The court also determines that Ali was driving above the speed limit while the accident occurred and so was grossly negligent.Which of the following is true of the given scenario?

A) Ali is liable to the LLC for the $3 million it was ordered to pay the man.
B) Ali will not be liable to the LLC for any losses caused to the LLC.
C) The $3 million should be paid by all the members of the LLC.
D) The $3 million should be paid by the member-managers of the LLC.

Question 48

Chan,Yuvi,Betty,and Bob form a member-managed LLC that sells antique commodities online.Betty secretly starts a competing business and makes secret profits through the business.Which of the following is true of the given scenario?

A) All the members can be held liable for breaching their duty.
B) Betty is liable for breaching her duty of care to the LLC.
C) Betty is liable for breaching her duty of loyalty to the LLC.
D) Betty can compete with the LLC without any legal liability.

Question 49

Chan,Yuvi,Betty,and Bob form a manager-managed LLC that sells antique commodities online.Yuvi and Bob are named managers of the LLC.Betty secretly starts a competing business to conduct online auctions over the Internet.Which of the following is true of the given scenario?

A) All the members can be held liable for breaching their duty.
B) Betty is liable for breaching her duty of care to the LLC.
C) Betty is liable for breaching her duty of loyalty to the LLC.
D) Betty can compete with the LLC without any legal liability.

Question 50

Which of the following is true of the management of an LLC?

A) Members cannot become managers of an LLC.
B) A manager-managed LLC shares management powers between members and managers.
C) A nonmember can become a manager of an LLC.
D) An LLC can be both member-managed and manager-managed simultaneously.

Question 51

Ali is a member of a member-managed LLC.While Ali is driving to a client's office to handle the LLC's business,he hits an old man and severely injures him.The man sues the LLC and recovers $3 million in damages.The court however determines that Ali was ordinarily negligent and that the accident was caused by the uneven terrain of the road.Which of the following is true of the given scenario?

A) Ali is liable to the LLC for the $3 million it was ordered to pay the man.
B) Ali will not be liable to the LLC for any losses caused to the LLC.
C) The $3 million should be paid by all the members of the LLC.
D) The $3 million should be paid by the member-managers of the LLC.

Question 52

Dorothy is a nonmanager member of a 15-person manager-managed LLC that is engaged in selling media spaces to advertising agencies.Dorothy secretly purchases some media spaces that are in high demand from a few clients without telling the others in the LLC,sells it to a few agencies,and gains huge profits for herself in the process.Which of the following is true of the given scenario?

A) All the members can be held liable for breaching their duty.
B) Dorothy is liable for breaching her duty of care to the LLC.
C) Dorothy is liable for breaching her duty of loyalty to the LLC.
D) Dorothy is not violating any duty to the LLC.

Question 53

Chan,Yuvi,Betty,and Bob form a manager-managed LLC that sells antique commodities online.Yuvi and Betty are named managers of the LLC.Betty secretly starts a competing business to conduct online auctions over the Internet.Which of the following is true of the given scenario?

A) All the members can be held liable for breaching their duty.
B) Betty is liable for breaching her duty of loyalty to the LLC.
C) Betty is liable for breaching her duty of care to the LLC.
D) Betty can compete with the LLC without any legal liability.

Question 54

________ includes the duty not to usurp an LLC's opportunities,make secret profits,secretly deal with the LLC,secretly compete with the LLC,or represent any interests adverse to those of the LLC.

A) Duty of discharge
B) Duty of restitution
C) Duty of loyalty
D) Duty of resolution

Question 55

A manager of a manager-managed LLC is appointed by ________.

A) the secretary of state
B) a vote of a majority of the members
C) a unanimous vote of the members
D) a unanimous vote of the shareholders

Question 56

In a manager-managed LLC,who among the following has the authority to bind the LLC to contracts?

A) the nonmanager members
B) the member whose capital contribution to the LLC is the highest
C) managers
D) shareholders

Question 57

Which of the following best defines the duty of care a member of a member-managed LLC must adhere to?

A) the duty of not engaging in a known violation of law
B) the duty of not usurping an opportunity of the LLC
C) the duty of not competing with the LLC's business
D) the duty of not engaging in undisclosed self-dealing

Question 58

Three friends form an LLC by contributing $40,000,$80,000,and $120,000.The LLC is designated to be member-managed.The LLC needs to sign an agreement with a supplier for conducting the business.The authority to bind the LLC to a contract with the supplier lies with ________.

A) only the member whose capital contribution to the LLC is the highest
B) all the three members
C) the nonmanager members
D) the member who is appointed as the manager

Question 59

Which of the following is true of a member-managed LLC?

A) Each member has equal rights in the management of the business of the LLC.
B) The member with the highest capital contribution becomes the de facto manager of the LLC.
C) Any matter relating to the business of the LLC is decided by the member managing the LLC.
D) Any matter relating to the business of the LLC is decided by the member with the highest capital contribution.

Question 60

________ is a duty owed by a member of a member-managed LLC and a manager of a manager-managed LLC not to engage in a known violation of law,intentional conduct,reckless conduct,or grossly negligent conduct that injures the LLC.

A) Duty of discharge
B) Duty of restitution
C) Duty of loyalty
D) Duty of care

Question 61

The Uniform Limited Liability Company Act (ULLCA)is not law unless a state adopts it as its LLC statute.

Question 62

A transfer of an interest in an LLC entitles the transferee by default to become a member of the LLC.

Question 63

The conversion of a business into an LLC takes effect when the articles of organization are filed with the secretary of state.

Question 64

Agreements to contribute cash or property can act as a member's capital contribution to an LLC.

Question 65

Under the ULLCA,at least five members are required to form an LLC.

Question 66

The price and terms of the distributional interest of a disassociating member is decided by federal LLC law.

Question 67

An operating agreement or amendment cannot be orally stated.

Question 68

A member's obligation to contribute capital is excused only by the member's death.

Question 69

LLPs are governed by federal law.

Question 70

All LLPs have a general partner who is personally liable for the debts and obligations of the partnership.

Question 71

The LLC law of the state governs the operation of an LLC in that state.

Question 72

The existence of an LLC begins when the articles of organization are delivered to the office of the secretary of state.

Question 73

An LLC can amend its articles of organization at any time if the amendments have a majority vote among the members of the LLC.

Question 74

Profits and losses from an LLC do not have to be distributed in the same proportion.

Question 75

The disassociation of a member from a term LLC before the expiration of the specified term is wrongful.

Question 76

A term LLC may be continued as an at-will LLC by a simple majority vote of the members of the LLC.

Question 77

An LLC has the power to issue notes and bonds.

Question 78

In most states,the law restricts the use of LLPs to certain types of professionals,such as accountants,lawyers,and doctors.

Question 79

The partners of an LLP stand to lose only their capital contribution if the partnership fails.

Question 80

The right of a member of an LLC to an equal share in the LLC's profits cannot be overruled by any agreement.