Deck 39: Limited Liability Companies and Limited Liability Partnerships

Question 1

Limited liability companies are created by federal law.

Answer 1

False

Question 2

The income or losses of a limited liability company flow through to the members' individual income tax returns, which avoids double taxation.

Answer 2

True

Question 3

An LLC (limited liability company) is a(n) ________.

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

Answer 3

A

Question 4

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 (limited liability company)
D) LLP (limited liability partnership)

Question 5

A member or a shareholder is the owner of a limited liability company.

Question 6

Which of the following is true of LLC (limited liability company) 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 7

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 (limited liability partnerships)
D) general partnerships

Question 8

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

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

Question 9

An limited liability company that is 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 10

A limited liability company is taxed at the entity level.

Question 11

The Uniform Limited Liability Company Act (ULLCA) is a federal law and is valid across the United States.

Question 12

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

A) Articles of LLP
B) Agreements of conversion
C) Articles of organization of LLP
D) Articles of amendment of LLC (limited liability company)

Question 13

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

Question 14

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

Question 15

Which of the following is true of an LLC (limited liability company)?

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 property.
D) The owners of an LLC are called general partners or specific partners.

Question 16

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

Question 17

A limited liability partnership has no general partner.

Question 18

Which of the following is true of a limited liability company formation?

A) Doctors and lawyers cannot 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.

Question 19

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 20

A limited liability company is an incorporated business entity.

Question 21

John, Nathan, and Julio form JNJ, LLC with an equal capital investment by each. On his way to a business meeting with the clients of JNJ, Nathan accidentally injures a woman named 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.
D) John, Nathan, and Julio have equal personal liability to Jessica's injuries.

Question 22

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

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

Question 23

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 the members
D) when the first certificate of interest is issued

Question 24

A(n) ________ refers to a document that states the terms for converting an existing business to a limited liability company.

A) articles of termination
B) operating agreement
C) articles of organization
D) agreement of conversion

Question 25

Which of the following best defines the term distributional interest?

A) the ratio in which profit is distributed among members of an LLC (limited liability company)
B) the process of distributing profits or losses according to the capital investment of the member with the interest
C) the constitution of management of an 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 26

A Limited liability company (LLC) can be organized in only one state.

Question 27

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 28

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) agreement of conversion

Question 29

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 30

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 31

A limited liability company cannot be abbreviated as LC.

Question 32

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 33

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 34

Which of the following is true of 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 30 percent of the profit.
C) A member who invests 40 percent of the capital receives 20 percent of the profit.
D) All members receive equal shares in profits regardless of the capital contributed.

Question 35

A(n) ________ LLC has a specified term of duration.

A) short-form
B) general
C) term
D) at-will

Question 36

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 a $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 37

The existence of a Limited liability company (LLC) begins when the articles of organization are filed.

Question 38

A(n) ________ LLC has no specified term of duration.

A) short-form
B) general
C) term
D) at-will

Question 39

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 40

Which of the following is true of capital contribution to an LLC (limited liability company)?

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 41

A Limited liability company (LLC) organized in the United States is considered a domestic LLC throughout the United States.

Question 42

An operating agreement can be amended orally.

Question 43

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

Question 44

Distributional interest refers to a member's ownership interest in an LLC (limited liability company).

Question 45

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

Question 46

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

Question 47

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

A) Williams Act
B) Securities Exchange Act
C) Uniform Limited Liability Company Act
D) Uniform Limited Partnership Act

Question 48

Which of the following is true of the management of an LLC (limited liability company)?

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 49

Members of LLCs (limited liability companies) are not personally liable for the LLCs' debts, obligations, and liabilities.

Question 50

Managers of LLCs (limited liability companies) are not personally liable for the debts, obligations, and liabilities of the LLC they manage.

Question 51

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

Question 52

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

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

Question 53

A Limited liability company (LLC) cannot amend its articles of organization.

Question 54

Which of the following is true of the liabilities of LLCs (limited liability companies)?

A) Members of LLCs are liable to the extent of their capital contribution.
B) Managers of LLCs are personally liable for the debts, obligations, and liabilities of the LLCs.
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 55

Members of an LLC have ________ liability.

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

Question 56

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

Question 57

An at-will Limited liability company (LLC) refers to an LLC that has no specified term of duration.

Question 58

How does an LLC acquire capital? What are the obligations involved in a member's contribution of capital?

Question 59

Profits and losses from a Limited liability company (LLC) do not have to be distributed in the same proportion.

Question 60

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

Question 61

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

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 62

Which of the following is true of the Uniform Limited Liability Company Act?

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

Question 63

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

Question 64

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

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

Question 65

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

A) Each member has equal rights in the management of the LLC.
B) Members designate a manager or managers to manage the LLC.
C) A designated manager or managers have little authority to manage the LLC.
D) Members have the right to manager the LLC.

Question 66

The manager does not owe a duty of loyalty to the limited liability company as he or she is not a member of the LLC.

Question 67

The duty of care for managers and members includes the duty not to usurp the LLC's (limited liability company's) opportunities.

Question 68

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.

Question 69

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

Question 70

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

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 71

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.

Question 72

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

A) Managers of an LLC are entitled to compensation and 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) A nonmember manager of an LLC is not entitled to compensation.

Question 73

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 74

The Uniform Limited Liability Company Act offers which of the following types of LLC organizations?

A) LLCs and LLPs
B) member-managed and manager-managed
C) member-managed and member-only
D) limited liability partners and limited liability members

Question 75

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

Question 76

________ is a duty owed by a member of a limited liability company 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 77

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 the employees of the company.

Question 78

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

Question 79

A tortfeasor can be a member or a manager of an LLC.

Question 80

A nonmanager member of an LLC is not entitled to remuneration for services performed for the LLC at any time.