Question 1

A limited liability company is "manager-managed," unless the articles of incorporation provide that it is "member-managed."

Accepted Answer

A limited liability company (LLC) is typically "member-managed" by default unless the operating agreement or articles of organization specify that it is "manager-managed."

Question 2

Owners of limited liability companies are said to have "quasi-limited" liability.

Accepted Answer

Owners of limited liability companies (LLCs) have "limited liability," meaning they are not personally responsible for the company's debts or liabilities beyond their investment in the company. The term "quasi-limited" liability is not a recognized legal concept.

Question 3

A limited liability company can be either a member-managed LLC or a manager-managed LLC.

Accepted Answer

This is true. A member-managed LLC is controlled by its members, while a manager-managed LLC is controlled by appointed managers.

Question 4

Under the Uniform Limited Liability Company Act,the articles of organization of a limited liability company must set forth whether the limited liability company is to be "manager-managed."

Accepted Answer

The Uniform Limited Liability Company Act requires the articles of organization to specify whether the LLC is member-managed or manager-managed.

Question 5

In a "member-managed" limited liability company,management power and the number of votes allowed each member are determined by each member's capital contribution.

Accepted Answer

In a "member-managed" LLC, each member typically has equal management power and voting rights, regardless of their capital contribution, unless otherwise specified in the operating agreement.

Question 6

Each member of a member managed limited liability company has rights in the management of the business of the limited liability company based upon the amount of the capital contribution,and those rights may not be modified by agreement.

Accepted Answer

This statement is false. In a member managed limited liability company, the members may modify their rights in the management of the business by agreement, as long as this is done in compliance with the company's operating agreement and state law. The amount of capital contribution is only one factor in determining a member's management rights.

Question 7

Unless otherwise provided in the operating agreement,a transfer of an interest in a limited liability company does not entitle the transferee to become a member of the LLC or to exercise any right of a member.

Accepted Answer

Unless explicitly stated in the operating agreement, the transfer of a limited liability company interest does not automatically grant the transferee membership status or any associated rights. This means that the rights and privileges of membership are determined by the operating agreement, which could require certain conditions to be met before a transfer of interest grants membership status.

Question 8

A member's ownership interest in a limited liability company is called a proportional interest.

Accepted Answer

A member's ownership interest in a limited liability company is typically referred to as a "membership interest" or "ownership interest," not a "proportional interest."

Question 9

A limited liability company is not a separate legal entity distinct from its members.

Accepted Answer

A limited liability company (LLC) is a separate legal entity from its members, meaning that the LLC can enter into contracts, own property, and sue or be sued in its own name. LLC members have limited liability, meaning their personal assets are generally protected from the debts and liabilities of the LLC.

Question 10

A manager of a limited liability company who negligently causes injury to another person while on the job is liable to the injured person.

Accepted Answer

As a general rule, managers of LLCs are not personally liable for the debts and obligations of the LLC. However, they can still be held personally liable for their own actions, including acts of negligence that cause injury to others while carrying out their duties as a manager of the LLC.

Question 11

In a limited liability company,the owners have limited liability only for judgments under $500,000.

Accepted Answer

The concept of limited liability in a limited liability company means that the owners are not personally liable for the debts and liabilities of the company beyond their initial investment. However, this does not mean that their liability is limited to a certain dollar amount. The limit of their liability is the total amount of their investment in the company. Therefore, the statement given in the question is false.

Question 12

Limited liability companies can enter into contracts only if the owners execute personal guarantees.

Accepted Answer

Limited liability companies are separate legal entities, so they can enter into contracts and conduct business on their own without requiring their owners to execute personal guarantees. This is one of the primary advantages of forming an LLC, as it helps protect the owners' personal assets from any debts or liabilities incurred by the business.

Question 13

The general rule is that owners of a limited liability company are not personally liable to third parties for the debts,obligations,and liabilities of a limited liability company beyond their capital contribution.

Accepted Answer

The limited liability protection is one of the main advantages of forming a limited liability company (LLC), and it generally shields the individual owners (called members) from personal liability for the company's debts and obligations. However, there are some exceptions to this rule, such as if the member personally guarantees a debt, commits fraud, or behaves negligently or recklessly.

Question 14

A member is personally liable for the debts of a limited liability company if he or she personally guarantees the repayment of the limited liability company's debts.

Accepted Answer

If a member personally guarantees the repayment of the LLC's debts, they are assuming personal liability for those debts. Otherwise, members are generally not personally liable for the debts of the LLC.

Question 15

A transferee of a distributional interest in a limited liability company becomes a member of the LLC if it is so provided in the operating agreement or if all the other members of the LLC consent.

Accepted Answer

According to the Uniform Limited Liability Company Act, a transferee of a distributional interest in an LLC becomes a member only if the operating agreement provides for it or all the other members agree to the transfer. Therefore, the statement is true.

Question 16

A member's distributional interest in a limited liability company is personal property and may be transferred in whole or in part.

Accepted Answer

According to the default rules of the Uniform Limited Liability Company Act, a member's distributional interest in an LLC is considered personal property and can be transferred in whole or in part without requiring the consent of other members or the LLC itself. However, the LLC operating agreement can impose restrictions on transferability to protect the interests of existing members or the company as a whole.

Question 17

A transferor who transfers his or her distributional interest in a limited liability company is not released from liability for the debts,obligations,and liabilities of the LLC.

Accepted Answer

This statement is true. When a transferor transfers their distributional interest in an LLC, they are still responsible for any debts, obligations, or liabilities that were incurred by the LLC prior to the transfer. This is because the transfer only changes the ownership of the interest, not the underlying obligations of the LLC.

Question 18

A manager of a limited liability company is personally liable for the debts of the limited liability company.

Accepted Answer

One of the main benefits of a limited liability company is that the managers or owners are not personally liable for the debts of the company. This is because the LLC is considered a separate legal entity from its owners. However, there are situations where a manager or owner could become personally liable, such as if they personally guaranteed a loan or engaged in fraudulent or illegal behavior.

Question 19

A limited liability company is liable for any loss or injury caused to anyone as a result of a wrongful act or omission by a member,a manager,an agent,or an employee of the LLC who commits the wrongful act while acting within the ordinary course of business of the LLC or with authority of the LLC.

Accepted Answer

A limited liability company offers protection to its members from personal liability for the company's debts or losses. However, the LLC can still be held liable for any damages caused by its employees or managers while performing duties related to the business. Therefore, the statement is true.

Question 20

A limited liability company member is personally liable for torts he or she commits while conducting company business.

Accepted Answer

Even though the overall liability of a member of an LLC is limited, they can still be held personally liable for their own wrongful actions or torts committed while conducting company business.

Quiz 30: Limited Liability Company and Limited Liability Partnership