Question 1

New members are admitted to an LLC only with approval by a majority of existing members.

Accepted Answer

This is generally true for most LLCs unless the operating agreement specifies a different process for admitting new members.

Question 2

Close corporations have less formality in their operational requirements.

Accepted Answer

Close corporations are also known as closely held corporations and they have less stringent operational requirements compared to publicly traded corporations. This includes fewer regulatory and reporting requirements, as well as decreased formality in corporate governance and decision-making processes.

Question 3

A limited liability company can be created informally.

Accepted Answer

A limited liability company (LLC) requires formal registration with the appropriate state agency, following specific procedures and regulations, and cannot be created informally.

Question 4

Members of limited liability companies have no right to vote on who should manage their companies.

Accepted Answer

Members of limited liability companies have the right to vote on who should manage their companies, unless otherwise specified in the company's operating agreement.

Question 5

Limited partners' profits and losses are allocated equally.

Accepted Answer

Limited partners' profits and losses are typically allocated based on their ownership percentage or the terms stated in the partnership agreement. It is not necessarily equal among all limited partners.

Question 6

It is fraud to form a corporation to avoid personal liability.

Accepted Answer

Forming a corporation to avoid personal liability is a legal and common practice. It allows individuals to separate their personal assets from their business assets and limits their personal liability for the corporation's debts and legal issues. However, if the corporation is found to be committing fraud or illegal activities, individuals involved may still be held personally liable.

Question 7

Limited partners can consult and advise with the general partner and still retain limited liability.

Accepted Answer

Limited partners are primarily passive investors and have no control over the company's operations. However, they can consult and advise the general partner without losing their limited liability status. This means that they are not personally liable for the company's debts and obligations beyond their initial investment.

Question 8

Appraisal rights are given only to dissenting shareholders.

Accepted Answer

Appraisal rights are a statutory right given to shareholders who dissent from certain corporate actions, such as mergers or consolidations, and object to the value of their shares. Only dissenting shareholders have the right to demand that their shares be appraised and to receive fair value for their shares.

Question 9

A LLP can be created by implication.

Accepted Answer

A Limited Liability Partnership (LLP) must be formally registered with the appropriate state or governmental body, following specific procedures and requirements. It cannot be created by implication or conduct.

Question 10

A limited liability company can be created informally.

Accepted Answer

A limited liability company (LLC) requires formal registration with the appropriate state or local government agency, following specific procedures and regulations, including filing articles of organization.

Question 11

Limited liability companies,limited liability partnerships,limited partnerships,general partnerships,sole proprietorships and S corporations all have flow-through income and loss provisions for tax purposes.

Accepted Answer

All of these business entities have flow-through income and loss provisions for tax purposes, meaning that the profits and losses pass through to the owners' personal tax returns rather than being taxed at the entity level.

Question 12

Upon termination of both limited and general partnerships,outside creditors have first priority in terms of asset distribution.

Accepted Answer

Upon the termination of a partnership, whether limited or general, the law requires that the debts of the partnership to outside creditors be settled first before any distributions are made to the partners. This ensures that creditors are paid before the partners divide any remaining assets among themselves.

Question 13

All owners in an LLP have limited liability.

Accepted Answer

In an LLP (Limited Liability Partnership), all the owners have limited liability, which means that their personal assets are protected and they are not liable for the debts or obligations of the business beyond their contribution to the partnership.

Question 14

Subchapter S or S Corporation shareholders have personal liability for corporate debts.

Accepted Answer

One of the benefits of forming an S Corporation is that shareholders have limited liability and are generally not personally liable for corporate debts.

Question 15

Limited liability companies are peculiar to the United States.

Accepted Answer

Limited liability companies are not peculiar to the United States. They exist in many other countries including the United Kingdom, Canada, and Australia.

Question 16

Owners of limited liability companies enjoy flow-through treatment of income and losses.

Accepted Answer

The owners of limited liability companies (LLCs) are typically not taxed at the company level, but rather the income and losses of the business "flow through" to the owners' individual tax returns. This means that the income is only taxed once at the individual level, providing flow-through treatment of income and losses for LLC owners.

Question 17

An assignment of a limited partner's interest terminates the limited partnership.

Accepted Answer

An assignment of a limited partner's interest does not terminate the limited partnership. It only transfers the interest to another party. The limited partnership continues to exist with the remaining partners.

Question 18

A merger requires a board resolution and shareholder approval.

Accepted Answer

A merger requires both a board resolution and shareholder approval. The board of directors must first approve the merger agreement and then the shareholders must vote to approve it. Without both of these approvals, the merger cannot take place.

Question 19

An inadequately capitalized corporation can have its corporate veil pierced.

Accepted Answer

If a corporation is inadequately capitalized, meaning it does not have enough funds to cover its debts and legal liabilities, it is at risk of having its corporate veil pierced. This means that the shareholders or owners of the corporation can be held personally liable for the corporation's debts and legal obligations.

Question 20

"Say on pay" gets its name from stakeholders getting to vote on executive compensation.

Accepted Answer

The answer of "Say on pay" gets its name from...

Quiz 17: Governance and Structure: Forms of Doing Business

New members are admitted to an LLC only with approval by a majority of existing members.

Close corporations have less formality in their operational requirements.

A limited liability company can be created informally.

Members of limited liability companies have no right to vote on who should manage their companies.

Limited partners' profits and losses are allocated equally.

It is fraud to form a corporation to avoid personal liability.

Limited partners can consult and advise with the general partner and still retain limited liability.

Appraisal rights are given only to dissenting shareholders.

A LLP can be created by implication.

A limited liability company can be created informally.

Limited liability companies,limited liability partnerships,limited partnerships,general partnerships,sole proprietorships and S corporations all have flow-through income and loss provisions for tax purposes.

Upon termination of both limited and general partnerships,outside creditors have first priority in terms of asset distribution.

All owners in an LLP have limited liability.

Subchapter S or S Corporation shareholders have personal liability for corporate debts.

Limited liability companies are peculiar to the United States.

Owners of limited liability companies enjoy flow-through treatment of income and losses.

An assignment of a limited partner's interest terminates the limited partnership.

A merger requires a board resolution and shareholder approval.

An inadequately capitalized corporation can have its corporate veil pierced.

"Say on pay" gets its name from stakeholders getting to vote on executive compensation.