Question 1

An LLC is a separate legal entity distinct from its members.

Accepted Answer

A) True 
 B)False

Question 2

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

A)  yes, Tanner is right, and the bank violated the law by asking Mona to sign a personal guarantee 
B)  yes, Tanner is right, but only if Mona can establish that she did not know the bank was asking her to do anything illegal when she signed the agreement 
C)  yes, Tanner is right, but the bank may recover its loan from Mona's capital contribution 
D)  no, Tanner is wrong, but only because Mona has opened a business selling goods, rather than real estate 
E)  no, Tanner is wrong, because a member of a limited liability company is personally liable for the debts of a limited liability company when a personal guarantee is provided 
A)  yes, Tanner is right, and the bank violated the law by asking Mona to sign a personal guarantee 
B)  yes, Tanner is right, but only if Mona can establish that she did not know the bank was asking her to do anything illegal when she signed the agreement 
C)  yes, Tanner is right, but the bank may recover its loan from Mona's capital contribution 
D)  no, Tanner is wrong, but only because Mona has opened a business selling goods, rather than real estate 
E)  no, Tanner is wrong, because a member of a limited liability company is personally liable for the debts of a limited liability company when a personal guarantee is provided

Question 3

LLCs are treated as ________ distinct from its members.

Accepted Answer

A)  artificial persons 
B)  partnerships 
C)  sole proprietorships 
D)  "C" corporations 
E)  "S" corporations 
A)  artificial persons 
B)  partnerships 
C)  sole proprietorships 
D)  "C" corporations 
E)  "S" corporations

Question 4

Most states do not restrict the use of limited liability partnerships to certain types of professionals.

Accepted Answer

A) True 
 B)False

Question 5

Under the ULLCA,the articles of organization of a limited liability company must set forth whether one or more of the members of the limited liability company are to be personally liable for the LLC's debts and obligations.

Accepted Answer

A) True 
 B)False

Question 6

Limited liability companies are creatures of ________.

Accepted Answer

A)  local ordinance 
B)  state law 
C)  federal law 
D)  constitutional mandate 
E)  the United States Supreme Court 
A)  local ordinance 
B)  state law 
C)  federal law 
D)  constitutional mandate 
E)  the United States Supreme Court

Question 7

The ULLCA covers most problems that arise in the formation,operation,and termination of LLCs.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is true regarding the legal relationship between a limited liability company and its members?

Accepted Answer

A)  A limited liability company is not a separate legal entity distinct from its members. 
B)  A limited liability company is a separate legal entity, distinct from its members. 
C)  A limited liability company is a separate legal entity only from members who own less than fifty percent of the company's stock. 
D)  A limited liability company is the "alter ego" of its members. 
E)  A limited liability company is a separate legal entity distinct from its members at the federal level, but not at the state level. 
A)  A limited liability company is not a separate legal entity distinct from its members. 
B)  A limited liability company is a separate legal entity, distinct from its members. 
C)  A limited liability company is a separate legal entity only from members who own less than fifty percent of the company's stock. 
D)  A limited liability company is the "alter ego" of its members. 
E)  A limited liability company is a separate legal entity distinct from its members at the federal level, but not at the state level.

Question 9

A member of a member-managed limited liability company and a manager of a manager-managed LLC owe a fiduciary duty of loyalty to the LLC.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  Unless the operating agreement provides otherwise, a member has the power to withdraw from both an "at-will" limited liability company and a "term" limited liability company. 
B)  A member does not have the power to withdraw from either an "at-will" limited liability company or a "term" limited liability company without the consent of all other members. 
C)  A member had the power to withdraw from a "term" limited liability company, but does not have the power to withdraw from an "at-will" limited liability company without the consent of all other members. 
D)  Unless the operating agreement provides otherwise, a member has the power to withdraw from an "at-will" limited liability company, but does not have the power to withdraw from a "term" limited liability company. 
E)  Unless the operating agreement provides otherwise, a member has the power to withdraw from a "term" limited liability company, but does not have the power to withdraw from an "at-will" limited liability company. 
A)  Unless the operating agreement provides otherwise, a member has the power to withdraw from both an "at-will" limited liability company and a "term" limited liability company. 
B)  A member does not have the power to withdraw from either an "at-will" limited liability company or a "term" limited liability company without the consent of all other members. 
C)  A member had the power to withdraw from a "term" limited liability company, but does not have the power to withdraw from an "at-will" limited liability company without the consent of all other members. 
D)  Unless the operating agreement provides otherwise, a member has the power to withdraw from an "at-will" limited liability company, but does not have the power to withdraw from a "term" limited liability company. 
E)  Unless the operating agreement provides otherwise, a member has the power to withdraw from a "term" limited liability company, but does not have the power to withdraw from an "at-will" limited liability company.

Question 12

Limited liability companies can issue notes and bonds.

Accepted Answer

A) True 
 B)False

Question 13

Statutes regulating the formation of limited liability companies are commonly referred to as limited liability company codes.

Accepted Answer

A) True 
 B)False

Question 14

For federal income tax purpose,a limited liability company is taxed at the entity level; as a result,its income or losses do not "flow through" to its members' individual income tax returns.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following need not be included in a limited liability company's articles of organization?

Accepted Answer

A)  the address of the LLC's initial office 
B)  the name and address of the initial agent for service of process 
C)  the business purpose(s) of the LLC 
D)  the name and address of each organizer 
E)  whether the LLC is to be a manager-managed LLC 
A)  the address of the LLC's initial office 
B)  the name and address of the initial agent for service of process 
C)  the business purpose(s) of the LLC 
D)  the name and address of each organizer 
E)  whether the LLC is to be a manager-managed LLC

Question 16

Regarding a "manager-managed" limited liability company:

Accepted Answer

A)  the manager must be a member. 
B)  there can only be one manager. 
C)  a manager must be appointed by a vote of the majority of members. 
D)  members who are not managers may participate in the management of the business, but managers have final decision-making authority. 
E)  a manager has more liability for company debts than does a member. 
A)  the manager must be a member. 
B)  there can only be one manager. 
C)  a manager must be appointed by a vote of the majority of members. 
D)  members who are not managers may participate in the management of the business, but managers have final decision-making authority. 
E)  a manager has more liability for company debts than does a member.

Question 17

Owners of a limited liability company retain limited liability until which of the following is received in net profit?

Accepted Answer

A)  $100,000 
B)  $500,000 
C)  $900,000 
D)  $1,000,000 
E)  There is no limit of net profit beyond which owners of a limited liability company lose their limited liability. 
A)  $100,000 
B)  $500,000 
C)  $900,000 
D)  $1,000,000 
E)  There is no limit of net profit beyond which owners of a limited liability company lose their limited liability.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

A limited liability company can give constructive notice of a member's disassociation by filing a statement of disassociation with the Secretary of State,stating the name of the limited liability company,and the name of the member disassociated from the limited liability company.

Accepted Answer

A) True 
 B)False

Question 20

A member of a manager-managed limited liability company who is not a manager owes no fiduciary duty of loyalty or care to the LLC or its other members.

Accepted Answer

A) True 
 B)False

Exam 30: Limited Liability Company and Limited Liability Partnership

An LLC is a separate legal entity distinct from its members.

LLCs are treated as ________ distinct from its members.

Most states do not restrict the use of limited liability partnerships to certain types of professionals.

Under the ULLCA,the articles of organization of a limited liability company must set forth whether one or more of the members of the limited liability company are to be personally liable for the LLC's debts and obligations.

Limited liability companies are creatures of ________.

The ULLCA covers most problems that arise in the formation,operation,and termination of LLCs.

Which of the following is true regarding the legal relationship between a limited liability company and its members?

A member of a member-managed limited liability company and a manager of a manager-managed LLC owe a fiduciary duty of loyalty to the LLC.

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

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

Limited liability companies can issue notes and bonds.

Statutes regulating the formation of limited liability companies are commonly referred to as limited liability company codes.

For federal income tax purpose,a limited liability company is taxed at the entity level; as a result,its income or losses do not "flow through" to its members' individual income tax returns.

Which of the following need not be included in a limited liability company's articles of organization?

Regarding a "manager-managed" limited liability company:

Owners of a limited liability company retain limited liability until which of the following is received in net profit?

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

A limited liability company can give constructive notice of a member's disassociation by filing a statement of disassociation with the Secretary of State,stating the name of the limited liability company,and the name of the member disassociated from the limited liability company.

A member of a manager-managed limited liability company who is not a manager owes no fiduciary duty of loyalty or care to the LLC or its other members.

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