Question 1

Sally wants to start a limited liability company named "Grocery Shopper" to help people who are too busy to go to the grocery store.Is there any problem with this name? If so,what?

Accepted Answer

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Question 2

Does it seem fair that owners of a limited liability company are not personally liable for debts of the company,even though they benefit from profit made by the company?

Accepted Answer

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Question 3

Harrison and Susie form a limited liability corporation.Harrison makes a capital contribution of $90,000,and Susie makes a capital contribution of $10,000.They have no agreement as to how profits are to be shared.If the limited liability company makes $100,000 in profits in its first year,under the Uniform Limited Liability Act,how will the profits be divided?

Accepted Answer

Under the Uniform Limited Liability Company Act, if there is no agreement on how profits are to be shared, profits are divided equally among members, regardless of their capital contributions.

Question 4

Melinda,Brett,and Phil are the members of a "manager-managed" limited liability company.Melinda and Brett each contributed $1,000 in capital.Phil contributed $10,000 in capital.All of the members agreed to hire Betty to manage the company.Three months after she starts,however,Melinda and Brett have become dissatisfied with her.Phil wants her to stay.Which of the following is true?

Accepted Answer

In a manager-managed LLC, the manager is typically appointed by a vote of the members. However, the manager can be removed by a vote of the members as well. The specific voting requirements for removing a manager should be set out in the LLC's operating agreement. In this scenario, it is not specified in the question what the voting requirements are for removing a manager. Therefore, it can be assumed that the standard default rule applies, which is that the manager can be removed by a majority vote of the members. Melinda and Brett, who together contributed less capital than Phil, would be sufficient to form a majority and have Betty removed, even if Phil opposes her removal. Therefore, option A is correct.

Question 5

Ten persons formed the Magic City Company,LLC for a term of twenty years,with no designation as to whether the corporation is "member-managed" or "manager-managed." Shortly before the expiration of this period,the members held a vote on whether to continue the business for an additional five years.The vote was eight votes in favor and two against continuing.As a result:

Accepted Answer

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Question 6

Why,when choosing a name for a new limited liability company,must organizers include the words "limited liability company," "limited company," or an appropriate abbreviation?

Accepted Answer

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Question 7

Regarding a "manager-managed" limited liability company:

Accepted Answer

In a manager-managed LLC, the manager is appointed by a vote of the majority of members. The manager does not need to be a member, there can be multiple managers, and non-manager members typically do not participate in management. Managers do not have more liability for company debts than members.

Question 8

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

Accepted Answer

In a manager-managed LLC, only the managers owe fiduciary duties of loyalty and care to the LLC. Members who are not managers do not owe these fiduciary duties.

Question 9

Which of the following is true regarding any duty of care owed by members of "member- managed" and "manager-managed" limited liability companies?

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Question 10

Bill,Bob,and Susie form a limited liability corporation,and each contributes $50,000 in capital.The limited liability company is in operation for two years,but then files bankruptcy,with $500,000 in debt.How much do Bill,Bob,and Susie stand to lose?

Accepted Answer

In a limited liability corporation, the shareholders are only liable for the amount of their capital contribution. Therefore, Bill, Bob, and Susie can only lose their initial $50,000 capital contribution each and are not personally liable for the debt of the company.

Question 11

The ________ of a limited liability company involves preserving and selling the assets of the LLC and distributing the money and property to creditors and members.

Accepted Answer

Winding up is the process of settling the accounts and liquidating the assets of a limited liability company (LLC) for the purpose of distributing the proceeds to creditors and members.

Question 12

In conformity with state law,five accountants formed a limited liability partnership.The partnership is dissolved at a time when partnership debts exceed assets.Which of the following is true?

Accepted Answer

In a limited liability partnership, the limited partners are not personally liable for the debts of the partnership beyond their capital contributions. This is one of the main advantages of forming such a partnership as compared to a general partnership or a sole proprietorship. Therefore, option C is the correct choice. Option A is incorrect because the dissolution of the partnership would lead to the winding up of its affairs, and the payment of its debts to the extent possible. Option B is incorrect because there is no concept of a general partner in a limited liability partnership. Option D is incorrect because the limitation of liability for limited partners is not dependent on the specific agreement of creditors. Option E is incorrect for the same reason as option B.

Question 13

Why,in the absence of an agreement to the contrary,should profits and losses of a limited liability company be distributed equally among members,regardless of their capital contribution? Would it not seem more equitable if profits and losses were distributed based on members' capital contributions?

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Question 14

Bart,Dale and Bill form a limited liability company.They each own a one-third interest in the company,and agree to divide profits and losses on that basis.The operating agreement was silent regarding the transfer of an interest,and it did not address the status of a transferee.Bart sells his interest to Milly for $10,000.The company earns $99,000 in profits.and Milly informs Dale and Bill that she is their new member.They say "no way," and that she can forget about a share of the profits.Who is right under the Uniform Limited Liability Company Act,and why?

Accepted Answer

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Question 15

Will,Mary,and Alice form a limited liability company and do not specify a term.Which of the following is true regarding the term of the limited liability company?

Accepted Answer

When the term of a limited liability company is not specified, it is considered an "at-will" company, meaning it has no set duration and can be dissolved at any time.

Question 16

Why should a person employed by a limited liability company who negligently causes an automobile accident while working in the scope of ordinary business be held liable in his or her personal capacity?

Accepted Answer

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Question 17

Which of the following is true regarding when a member has the power to withdraw from a limited liability company?

Accepted Answer

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Question 18

Mona is opening a new business selling fake fur coats.She organizes the company as a limited liability company called Fake-It,LLC and borrows $100,000 from a local bank in Fake-It's name.She also signs a personal guarantee at the bank promising to pay the debt of Fake-It.A friend of hers,Tanner,a second-year law student,advises her not to worry about the personal guarantee,because under the law of limited liability companies,it would be illegal for anyone to attempt to hold her liable for debts of the company.Is Tanner right?

Accepted Answer

Tanner is incorrect in stating that holding Mona liable for the debts of Fake-It would be illegal under the law of limited liability companies. While the limited liability company structure generally protects the personal assets of its members from being used to satisfy the company's debts, a personal guarantee waives this protection and makes the member personally liable for the debt. Therefore, the bank may hold Mona personally liable for the debt of Fake-It based on her personal guarantee.

Question 19

Sarah,who manages a limited liability company,borrows $500,000 from a bank.She is careful to sign the note to the bank in the name of the limited liability company only.When the company goes bankrupt,however,the bank seeks repayment from her.Is she liable?

Accepted Answer

Limited liability companies (LLCs) are designed to limit the personal liability of the owners or managers for the debts of the company. As long as Sarah signed the note to the bank in the name of the LLC only, and did not give any personal guarantee or collateral, she should not be personally liable for the debt of the company. The fact that the company went bankrupt does not change this liability protection. Therefore, the correct answer is E.

Question 20

Tori is interested in developing a new business putting on dog shows for mutts and awarding prizes.Tori believes this business is needed to give owners of dogs with no pedigree a "fair shake." Tori needs to find some investors,and she is also interested in reducing her tax liability.She asks you about the advantages of a limited liability company.What is your advice?

Accepted Answer

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Quiz 30: Limited Liability Company and Limited Liability Partnership

Sally wants to start a limited liability company named "Grocery Shopper" to help people who are too busy to go to the grocery store.Is there any problem with this name? If so,what?

Does it seem fair that owners of a limited liability company are not personally liable for debts of the company,even though they benefit from profit made by the company?

Why,when choosing a name for a new limited liability company,must organizers include the words "limited liability company," "limited company," or an appropriate abbreviation?

Regarding a "manager-managed" limited liability company:

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

Which of the following is true regarding any duty of care owed by members of "member- managed" and "manager-managed" limited liability companies?

Bill,Bob,and Susie form a limited liability corporation,and each contributes $50,000 in capital.The limited liability company is in operation for two years,but then files bankruptcy,with $500,000 in debt.How much do Bill,Bob,and Susie stand to lose?

The ________ of a limited liability company involves preserving and selling the assets of the LLC and distributing the money and property to creditors and members.

In conformity with state law,five accountants formed a limited liability partnership.The partnership is dissolved at a time when partnership debts exceed assets.Which of the following is true?

Why,in the absence of an agreement to the contrary,should profits and losses of a limited liability company be distributed equally among members,regardless of their capital contribution? Would it not seem more equitable if profits and losses were distributed based on members' capital contributions?

Will,Mary,and Alice form a limited liability company and do not specify a term.Which of the following is true regarding the term of the limited liability company?

Why should a person employed by a limited liability company who negligently causes an automobile accident while working in the scope of ordinary business be held liable in his or her personal capacity?

Which of the following is true regarding when a member has the power to withdraw from a limited liability company?

Sarah,who manages a limited liability company,borrows $500,000 from a bank.She is careful to sign the note to the bank in the name of the limited liability company only.When the company goes bankrupt,however,the bank seeks repayment from her.Is she liable?