Question 1

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.

Accepted Answer

The operating agreement is a legal document that outlines the rules, regulations, and provisions governing the operations, management, and ownership of an LLC. It is an agreement entered into by the members of the LLC that sets out the rights, responsibilities, and duties of all parties involved. The operating agreement is a crucial document for an LLC, as it helps to protect the interests of members and ensure smooth business operations. The other options listed are documents related to the formation or conversion of an LLC, but none of them serve the same purpose or have the same level of importance as the operating agreement.

Question 2

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?

Accepted Answer

The operating agreement of an LLC can generally be amended if all members agree, even if there was no specific amendment clause included in the original agreement. This allows for flexibility and changes to be made as the business evolves and the needs of the LLC change.

Question 3

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

Accepted Answer

The certificate of interest is usually issued by a bank or financial institution to its depositors indicating the interest earned on a deposit account. Similarly, a stock certificate is issued by a corporation to its shareholders as evidence of ownership and entitlement to dividends. The other options (promissory note, deposit note, initial public offer) do not refer to certificates issued by corporations.

Question 4

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?

Accepted Answer

In the absence of an agreement, profits are divided equally among members based on their contribution to the LLC's capital. Philip contributed 40% of the total capital ($50,000 / ($50,000 + $75,000) = 0.4), and Deborah contributed 60% (($75,000 / ($50,000 + $75,000) = 0.6). Therefore, each member is entitled to 40% and 60% of the profits, respectively. With $100,000 profit, Philip would receive 40% x $100,000 = $40,000, and Deborah would receive 60% x $100,000 = $60,000. However, since Philip only contributed $50,000 in capital, he can only receive up to that amount in profit distribution. Therefore, he would receive the same amount as his capital contribution of $50,000, and Deborah would also receive $50,000. Thus, the answer is B.

Question 5

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

Accepted Answer

Since the LLC was organized in Alabama and is operating in Texas, it is considered a foreign limited liability company in Texas.

Question 6

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

Accepted Answer

A certificate of interest is a document that shows a member's ownership interest in an LLC. It specifies how much of the LLC the member owns, and is similar to stock certificates in a corporation. Articles of organization outline the formation of the LLC, the operating agreement specifies the rules and regulations that the LLC will follow, and an agreement of conversion is a legal document used to change the business structure of a company.

Question 7

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

Accepted Answer

An LLC is classified as domestic LLC in the state where it is established. A sole proprietorship is an unincorporated business owned and run by an individual, a general partnership is an unincorporated business owned and run by two or more people with no separation between personal and business assets, and a term LLC is not a recognized type of LLC.

Question 8

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?

Accepted Answer

The answer of Gerard and Tony organize an LLC by...

Question 9

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

Accepted Answer

The acronym ULLCA stands for Uniform Limited Liability Company Act, which is a model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs. The Williams Act and Securities Exchange Act are both federal statutes related to securities regulation, while ULPA stands for Uniform Limited Partnership Act, which is similar to ULLCA but pertains to limited partnerships rather than LLCs.

Question 10

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 true in this context?

Accepted Answer

The statement indicates that the LLC has been organized as a term LLC with a specified duration of 25 years from the date of filing the articles of organization. This means that the LLC will automatically dissolve at the end of the specified term unless it is renewed or extended by its members. As such, the LLC is valid as a term LLC.

Question 11

________ 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.

Accepted Answer

Articles of organization are the formal documents that must be filed with the secretary of state's office to legally form an LLC. Operating agreements are internal documents that govern the operations of the LLC, while certificates of interest and articles of amendment are documents that are filed after the LLC has been formed.

Question 12

An LLC is a(n)________.

Accepted Answer

An LLC (limited liability company) is an unincorporated business entity, meaning it is not a corporation but is still a separate legal entity from its owners.

Question 13

Which of the following is true of an LLC formation?

Accepted Answer

The answer of Which of the following is true of...

Question 14

Which of the following is true of the ULLCA?

Accepted Answer

The Uniform Limited Liability Company Act (ULLCA) provides uniform laws for the dissolution of LLCs. Option A is incorrect as the ULLCA deals specifically with limited liability companies, not corporations. Option C is also incorrect as the ULLCA is a model act that must be adopted by individual states, and some states may make modifications to the act. Option D is incorrect as the ULLCA only governs LLCs, not proprietorships or LLPs.

Question 15

Which of the following is true of an LLC?

Accepted Answer

An LLC is regarded as a separate legal entity, which means it can own property, enter into contracts, and conduct business activities. It is not a creature of federal law, and the owners are called members, not general or specific partners.

Question 16

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

Accepted Answer

Only sole proprietors can obtain the benefit of the limited liability shield of an LLC in states where the LLC may be organized by only one member. This means that the sole proprietor's personal assets are protected from any debts or liabilities associated with the LLC. Corporations, LLPs, and general partnerships are not eligible for single-member LLCs.

Question 17

The owner of an LLC is called ________.

Accepted Answer

The owner of an LLC is called a "member."

Question 18

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

Accepted Answer

The conversion of an existing business to an LLC takes effect when the articles of organization are properly filed with the secretary of state.

Question 19

Which of the following is true of LLC taxation?

Accepted Answer

An LLC is not taxed at the entity level. Instead, the income or losses of the LLC flow through to the members' individual income tax returns. This is known as pass-through taxation. The members are only taxed once on their share of the LLC's income.

Question 20

Which of the following best defines the term distributional interest?

Accepted Answer

Distributional interest refers to a member's ownership interest in an LLC that entitles the member to receive distributions of money and property from the LLC. It is the right of the member to receive a share of the profits or losses of the company. Options A, B, and C refer to various aspects of LLC management and operations but do not accurately define distributional interest.

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

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.