Deck 15: Limited Liability Companies, Limited Liability Partnerships, and Special Forms of Business

Question 1

Which of the following is true of the ULLCA?

A)It provides comprehensive laws for the formation of corporations.
B)It provides uniform laws for the dissolution of LLCs.
C)It is a state law that is uniform across the United States.
D)It governs the operation of proprietorships and LLPs.

Answer 1

B

Question 2

Which of the following is true of an LLC formation?

A)Doctors and lawyers can operate practices as LLCs.
B)An LLC has to be organized in every state that it operates.
C)LC cannot be used to denote an LLC.
D)An LLC is a creation of federal law.

Answer 2

A

Question 3

A(n)________ refers to an agreement 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)franchise agreement
C)operating agreement
D)agreement of conversion

Answer 3

C

Question 4

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

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

Question 5

Which of the following is true of an LLC?

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

Question 6

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 to 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 distributions of money and property from the LLC

Question 7

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 8

An LLC is a(n)________.

A)unincorporated business entity
B)incorporated business entity
C)cooperative entity
D)proprietorship

Question 9

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 10

In which of the following cases does the conversion of an existing business to an LLC take effect?

A)when the articles of organization are filed with the secretary of state
B)when the members enter into an agreement of conversion
C)when an operating agreement is finalized by members
D)when the first certificate of interest is issued

Question 11

Which of the following is true of LLC taxation?

A)An LLC is taxed as a corporation in all general cases.
B)Income or losses of an LLC do not flow through to the members' individual income tax returns.
C)Members of an LLC are subject to double taxation.
D)An LLC is not taxed at the entity level.

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

Peter,Preston,and Penny organize an LLC in January.While composing the operating agreement,they forget to include an 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 14

________ 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 15

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 16

The owner of an LLC is called a ________.

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

Question 17

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 18

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

A)certificate of interest
B)distributional interest
C)operating agreement
D)agreement of conversion

Question 19

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)corporations
B)sole proprietors
C)LLPs
D)general partnerships

Question 20

Sam Muller and Toby Richardson form 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 formed a term LLC.
D)Muller and Richardson have formed an at-will LLC.

Question 21

A limited liability company is an incorporated business entity.

Question 22

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 23

An LLC is taxed at the entity level.

Question 24

The Uniform Limited Liability Company Act is a model act that provides comprehensive and uniform laws for the formation,operation,and dissolution of LLCs.

Question 25

The ULLCA is a federal law and is valid across the United States.

Question 26

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 27

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

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

Question 28

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 29

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

A)a vote
B)a proxy
C)personal property
D)an authority in management

Question 30

LLCs are treated as artificial persons who can sue or be sued and enter into and enforce contracts.

Question 31

The ________ is a duty owed by a member of an LLC to not act adversely to the interests of the LLC.

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

Question 32

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 33

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 a unanimous vote of the members.
D)Shareholders are not allowed to decide matters relating to the business of the LLC.

Question 34

Which of the following actions requires all members in a manager-managed LLC to vote?

A)issuing a certificate of interest
B)admitting new members
C)converting an existing business into an LLC
D)expanding operations in another country

Question 35

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 36

Which of the following methods is used to appoint a manager of a manager-managed LLC?

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

Question 37

Limited liability companies are created by federal law.

Question 38

A member or a shareholder is the owner of an LLC.

Question 39

Members of an LLC have ________ liability.

A)limited
B)unlimited personal
C)unlimited capital
D)strict

Question 40

The income or losses of an LLC flow through to the members' individual income tax returns;this avoids double-taxation.

Question 41

A limited liability company cannot be abbreviated as LC.

Question 42

A distributional interest refers to a member's ownership interest in an LLC.

Question 43

An LLC is not liable for any injury caused by an LLC member while acting within the ordinary course of business of the LLC.

Question 44

Agents of an LLC are not permitted to enter into contracts on behalf of the LLC.

Question 45

The existence of an LLC begins when the articles of organization are filed.

Question 46

The United States does not permit an LLC to be member-managed.

Question 47

Members of LLCs are not personally liable for the LLC's debts,obligations,and liabilities.

Question 48

A manager does not owe a duty of loyalty to the LLC as he or she is not a member of the LLC.

Question 49

In a manager-managed LLC,amending the articles of organization cannot be delegated to the managers.

Question 50

An LLC cannot amend its articles of organization.

Question 51

Managers of LLCs are not personally liable for the debts,obligations,and liabilities of the LLC they manage.

Question 52

In a manager-managed LLC,it is necessary that the manager is a member of that LLC.

Question 53

An LLC can be organized in only one state.

Question 54

If a member or manager of an LLC is found to be a tortfeasor,he or she is not personally liable for the injury or death of another person.

Question 55

An operating agreement can be amended orally.

Question 56

An LLC organized in the United States is considered a domestic LLC throughout the United States.

Question 57

Articles of organization are documents that evidence a member's ownership interest in an LLC.

Question 58

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

Question 59

The duty of care for managers and members includes the duty not to usurp the LLC's opportunities.

Question 60

An operating agreement is a document that states the terms for converting an existing business to an LLC.

Question 61

An LLC is formed by delivering ________ to the office of the secretary of state of the state of organization for filing.

Question 62

Explain the process that exempts members of an LLC from double taxation.

Question 63

Distinguish between a member-managed and a manager-managed LLC.Mention the exceptional actions that cannot be delegated to managers.

Question 64

A(n)________ is established when one party licenses another party to use the first party's trade name,trademarks,commercial symbols,patents,copyrights,and other property in the distribution and selling of goods and services.

A)proprietorship
B)franchise
C)implicit contract
D)general partnership

Question 65

A(n)________ is an unincorporated business entity that combines the most favorable attributes of general partnerships,limited partnerships,and corporations.

Question 66

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

Question 67

An LLP has a(n)________ tax benefit,where no tax is paid at the partnership level,and all profits and losses are reported on the individual partners' income tax returns.

Question 68

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

Question 69

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

Question 70

Partners of LLPs are personally liable for the LLPs' debts,obligations,and liabilities.

Question 71

A(n)________ is a special form of partnership in which all partners are limited partners,and there are no general partners.

A)domestic LLC
B)proprietorship
C)LLC
D)LLP

Question 72

In a(n)________ 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.

Question 73

A member's ownership interest in an LLC is known as a(n)________.

Question 74

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

Question 75

In a(n)________ LLC,the managers have authority to bind the LLC to contracts,but nonmanager members cannot bind the LLC to contracts.

Question 76

What is a distributional interest? Explain the terms of its transfer.

Question 77

A person who intentionally or unintentionally (negligently)causes injury or death to another person is called a(n)________.

Question 78

A limited liability partnership has no general partner.

Question 79

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

A)Articles of LLP
B)Agreements of conversion
C)Articles of organization of LLP
D)Articles of amendment of LLC

Question 80

A member of a manager-managed LLC who is not a manager owes no fiduciary duty of loyalty or care to the LLC or its other members.