Question 1

In general,for what purpose(s)can an LLC be formed?

Accepted Answer

A)  only to practice a profession,such as accountancy or medicine 
B)  only for the stated purposes in the Uniform Limited Liability Company Act 
C)  only for the purposes that the Internal Revenue Service has recognized as valid LLC purposes 
D)  for any lawful purpose 
A)  only to practice a profession,such as accountancy or medicine 
B)  only for the stated purposes in the Uniform Limited Liability Company Act 
C)  only for the purposes that the Internal Revenue Service has recognized as valid LLC purposes 
D)  for any lawful purpose D

Question 2

A party may usurp an LLC's business opportunity,as this will not breach the duty of loyalty owed to the LLC.

Accepted Answer

A) True 
 B)False  False

Question 3

Barry,Harry,and Larry form an LLC.Barry contributes $100,000 in capital and the other two contribute $50,000 each.This LLC was structured as a manager-managed LLC with Harry designated as the manager.In reality,during the first year the three members actively took part in the management of the LLC.In fact,of the total time spent by the members managing the business,60 percent of the time was spent by Larry,with Barry and Harry each contributing 20 percent of the time.The LLC was unexpectedly profitable in the first year and the members are in dispute over the allocation of profits.There are no provisions in their operating agreement covering profit allocations.Which of the following is true?

Accepted Answer

A)  The members will divide all profits equally. 
B)  The members will divide all profits in accordance with their capital contributions. 
C)  The members are each entitled to an allocation based on the value of the services that each provided,with the residual allocated equally. 
D)  Harry,but not Barry or Larry,is entitled to an allocation based on the value of his services provided,with the residual allocated equally. 
E)  Larry,but not Barry or Harry,is entitled to an allocation based on the value of his services provided,with the residual allocated equally. 
A)  The members will divide all profits equally. 
B)  The members will divide all profits in accordance with their capital contributions. 
C)  The members are each entitled to an allocation based on the value of the services that each provided,with the residual allocated equally. 
D)  Harry,but not Barry or Larry,is entitled to an allocation based on the value of his services provided,with the residual allocated equally. 
E)  Larry,but not Barry or Harry,is entitled to an allocation based on the value of his services provided,with the residual allocated equally. A

Question 4

If an LLC fails to follow formalities such as keeping minutes of meetings,then which of the following is true?

Accepted Answer

A)  This failure will not result in imposing personal liability on any member. 
B)  All members will lose their limited liability. 
C)  The managers of a manager-managed LLC and all members of a member-managed LLC will lose limited liability. 
D)  Only the managers of a manager-managed LLC will lose limited liability. 
E)  Only the party or parties responsible for the failure will lose limited liability. 
A)  This failure will not result in imposing personal liability on any member. 
B)  All members will lose their limited liability. 
C)  The managers of a manager-managed LLC and all members of a member-managed LLC will lose limited liability. 
D)  Only the managers of a manager-managed LLC will lose limited liability. 
E)  Only the party or parties responsible for the failure will lose limited liability.

Question 5

Most LLCs elect to be taxed as a corporation.

Accepted Answer

A) True 
 B)False

Question 6

Of the following,who owes a fiduciary duty of loyalty to an LLC?

Accepted Answer

A)  all members of all LLCs 
B)  members of member-managed LLCs and managers of manager-managed LLCs 
C)  managers of manager-managed LLCs,but no other members of any LLCs 
D)  all members of manager-managed LLCs,but no one in member-managed LLCs 
A)  all members of all LLCs 
B)  members of member-managed LLCs and managers of manager-managed LLCs 
C)  managers of manager-managed LLCs,but no other members of any LLCs 
D)  all members of manager-managed LLCs,but no one in member-managed LLCs

Question 7

Which of the following for an LLC is equivalent to a stock certificate for a corporation?

Accepted Answer

A)  certificate of authority 
B)  certificate of interest 
C)  certificate of control 
D)  certificate of shares 
A)  certificate of authority 
B)  certificate of interest 
C)  certificate of control 
D)  certificate of shares

Question 8

Norm,Cliff and Sam form a limited liability company.Norm contributes $20,000,Cliff $30,000 and Sam $50,000.The operating agreement does not state how profits and losses are to be apportioned.The company makes a $60,000 profit during the year.Under the ULLCA,how will profits be divided?

Accepted Answer

A)  Norm will receive $12,000,Cliff $18,000,and Sam $30,000. 
B)  Norm will receive $20,000,Cliff $20,000,and Sam $20,000. 
C)  Norm will receive $18,000,Cliff $12,000,and Sam $30,000. 
D)  Norm will receive $15,000,Cliff $15,000,and Sam $30,000. 
A)  Norm will receive $12,000,Cliff $18,000,and Sam $30,000. 
B)  Norm will receive $20,000,Cliff $20,000,and Sam $20,000. 
C)  Norm will receive $18,000,Cliff $12,000,and Sam $30,000. 
D)  Norm will receive $15,000,Cliff $15,000,and Sam $30,000.

Question 9

A member has the power to withdraw from a term LLC prior to the time specified.

Accepted Answer

A) True 
 B)False

Question 10

An LLC may only be member-managed.

Accepted Answer

A) True 
 B)False

Question 11

Which types of businesses can be converted to an LLC?

Accepted Answer

A)  general partnerships only 
B)  general partnerships and limited partnerships only 
C)  corporations only 
D)  corporations and limited partnerships only 
E)  corporations,general partnerships,and limited partnerships 
A)  general partnerships only 
B)  general partnerships and limited partnerships only 
C)  corporations only 
D)  corporations and limited partnerships only 
E)  corporations,general partnerships,and limited partnerships

Question 12

Limited liability companies are authorized by federal law.

Accepted Answer

A) True 
 B)False

Question 13

John is in the planning stages of forming a business with several others.John has heard that an LLC would provide the best of both worlds,that is,partnership taxation and limited liability.But John has also heard that one must very carefully structure an LLC or the Internal Revenue Service might deny partnership taxation.Lastly,John needs to review his overall tax situation because he thinks that corporate taxation might actually be better for his particular situation.Which of the following is true?

Accepted Answer

A)  Unless structured with the precisely correct provisions and characteristics,an LLC risks a determination by the Internal Revenue Service that it will be taxed in a manner different than the owners intended. 
B)  The Internal Revenue Service now taxes all LLCs as partnerships. 
C)  The LLC can choose whether it wants to be taxed as a partnership or corporation,but once this determination is made,it will apply to all owners of the LLC. 
D)  Each of the owners of the LLC can choose partnership or corporate tax treatment of their income from the LLC,thus John will be free to choose corporate treatment even if all the other owners choose to be taxed as owning an interest in a partnership. 
E)  The Internal Revenue Service will determine the tax treatment,but this will be done separately for each owner based on that owner's tax situation,thus it might determine partnership taxation for some members and corporate taxation for other owners. 
A)  Unless structured with the precisely correct provisions and characteristics,an LLC risks a determination by the Internal Revenue Service that it will be taxed in a manner different than the owners intended. 
B)  The Internal Revenue Service now taxes all LLCs as partnerships. 
C)  The LLC can choose whether it wants to be taxed as a partnership or corporation,but once this determination is made,it will apply to all owners of the LLC. 
D)  Each of the owners of the LLC can choose partnership or corporate tax treatment of their income from the LLC,thus John will be free to choose corporate treatment even if all the other owners choose to be taxed as owning an interest in a partnership. 
E)  The Internal Revenue Service will determine the tax treatment,but this will be done separately for each owner based on that owner's tax situation,thus it might determine partnership taxation for some members and corporate taxation for other owners.

Question 14

Arthur,Betty,Charlie,Diane and Edward created a limited liability company.Arthur contributed $40,000,and each of the others contributed $10,000 to the capital.The group must vote on making a business decision.Arthur and Betty vote to take the action,while the others vote against it.Who wins?

Accepted Answer

A)  Arthur and Betty win because the accumulated capital of the duo is greater than the other members. 
B)  Arthur and Betty win,because Arthur has seniority,having contributed more than any other member of the group. 
C)  Charlie,Diane and Edward win because they constitute a majority. 
D)  Neither group wins,because the vote has to be unanimous. 
A)  Arthur and Betty win because the accumulated capital of the duo is greater than the other members. 
B)  Arthur and Betty win,because Arthur has seniority,having contributed more than any other member of the group. 
C)  Charlie,Diane and Edward win because they constitute a majority. 
D)  Neither group wins,because the vote has to be unanimous.

Question 15

When an LLC desires to do business in another state,it must obtain a(n):

Accepted Answer

A)  out-of-state business permit 
B)  certificate of authority 
C)  foreign agent authorization 
D)  articles of organization exemption 
E)  authorization to extend business out of state 
A)  out-of-state business permit 
B)  certificate of authority 
C)  foreign agent authorization 
D)  articles of organization exemption 
E)  authorization to extend business out of state

Question 16

Upon the expiration of the term of a term LLC,the LLC can be continued:

Accepted Answer

A)  as a term LLC by a majority vote of the members 
B)  as a term LLC by a unanimous vote of the members 
C)  as an at-will LLC by a majority vote of the members 
D)  B or C only 
E)  A,B,or C 
A)  as a term LLC by a majority vote of the members 
B)  as a term LLC by a unanimous vote of the members 
C)  as an at-will LLC by a majority vote of the members 
D)  B or C only 
E)  A,B,or C

Question 17

At the conclusion of a term LLC's term,a majority vote by the members to continue operating will result in the creation of a new term LLC.

Accepted Answer

A) True 
 B)False

Question 18

Absent an agreement,which of the following is correct about a non-manager member's right to compensation for services provided to an LLC?

Accepted Answer

A)  The member is entitled to compensation for any services rendered on behalf of the LLC. 
B)  The member is entitled to compensation for any services that benefit the LLC. 
C)  The member is not entitled to compensation for any services provided for the LLC. 
D)  The member is entitled to compensation for services of winding up the business of the LLC,but not for any other services. 
E)  The member is entitled to compensation for services so long as the LLC earns a profit in the year the service was provided by the member. 
A)  The member is entitled to compensation for any services rendered on behalf of the LLC. 
B)  The member is entitled to compensation for any services that benefit the LLC. 
C)  The member is not entitled to compensation for any services provided for the LLC. 
D)  The member is entitled to compensation for services of winding up the business of the LLC,but not for any other services. 
E)  The member is entitled to compensation for services so long as the LLC earns a profit in the year the service was provided by the member.

Question 19

Eric is a member of a manager-managed LLC but is not a manager.This LLC invests in real estate and manages it as rental property in a college town.Eric has made several recommendations to the managers regarding property that he considers to be a good buy.Eric,however,seldom performed even the slightest investigation of the property before recommending it to the managing members.Eric also purchased a couple of rental properties on his own account,taking very careful and sneaky steps to ensure that the other members of the LLC did not learn of these purchases.Which duties has Eric violated?

Accepted Answer

A)  loyalty 
B)  loyalty and care 
C)  loyalty,care,and good faith and fair dealing 
D)  good faith and fair dealing 
E)  none of these 
A)  loyalty 
B)  loyalty and care 
C)  loyalty,care,and good faith and fair dealing 
D)  good faith and fair dealing 
E)  none of these

Question 20

Losses from an LLC have to be distributed in the same proportion.

Accepted Answer

A) True 
 B)False

Exam 39: Limited Liability Companies and Limited Liability Partnerships

In general,for what purpose(s)can an LLC be formed?

A party may usurp an LLC's business opportunity,as this will not breach the duty of loyalty owed to the LLC.

If an LLC fails to follow formalities such as keeping minutes of meetings,then which of the following is true?

Most LLCs elect to be taxed as a corporation.

Of the following,who owes a fiduciary duty of loyalty to an LLC?

Which of the following for an LLC is equivalent to a stock certificate for a corporation?

Norm,Cliff and Sam form a limited liability company.Norm contributes $20,000,Cliff $30,000 and Sam $50,000.The operating agreement does not state how profits and losses are to be apportioned.The company makes a $60,000 profit during the year.Under the ULLCA,how will profits be divided?

A member has the power to withdraw from a term LLC prior to the time specified.

An LLC may only be member-managed.

Which types of businesses can be converted to an LLC?

Limited liability companies are authorized by federal law.

Arthur,Betty,Charlie,Diane and Edward created a limited liability company.Arthur contributed $40,000,and each of the others contributed $10,000 to the capital.The group must vote on making a business decision.Arthur and Betty vote to take the action,while the others vote against it.Who wins?

When an LLC desires to do business in another state,it must obtain a(n):

Upon the expiration of the term of a term LLC,the LLC can be continued:

At the conclusion of a term LLC's term,a majority vote by the members to continue operating will result in the creation of a new term LLC.

Absent an agreement,which of the following is correct about a non-manager member's right to compensation for services provided to an LLC?

Losses from an LLC have to be distributed in the same proportion.

Legal Heritage and the Information Age

Court Systems and Jurisdiction

Judicial, Alternative, and Online Dispute Resolution

Constitutional Law for Business and E-Commerce

Intentional Torts and Negligence

Strict Liability and Product Liability

Intellectual Property and Cyber Piracy

Criminal Law and Cyber Crimes

Nature of Traditional and E-Contracts

Agreement

Consideration and Promissory Estoppel

Capacity and Legality

Genuineness of Assent and Undue Influence

Statute of Frauds and Equitable Exceptions

Third-Party Rights and Discharge

Remedies for Breach of Traditional and E-Contracts

Internet Law and E-Commerce

Formation of Sales and Lease Contracts

Title to Goods and Risk of Loss

Remedies for Breach of Sales and Lease Contracts

Sales and Lease Warranties

Creation of Negotiable Instruments

Transferability and Holder In Due Course

Liability,Defenses and Discharge

Checks, the Banking System, and E-Money

Creditor's and Debtor's Rights

Secured Transactions and Electronic Filing

Bankruptcy and Reorganization

Agency Formation and Termination

Liability of Principals, Agents, and Independent Contractors

Employment,Worker Protection,and Immigration Laws

Labor Law and Collective Bargaining

Equal Opportunity in Employment

Small Businesses, Entrepreneurs, and General Partnerships

Limited Partnerships and Limited Liability Limited Partnerships

Corporate Formation and Financing

Corporate Governance and the Sarbanes Oxley Act

Corporate Acquisitions and Multinational Corporations

Franchises and Special Forms of Business

Investor Protection and Online Securities Transactions

Ethics and Social Responsibility of Business

Administrative Law and Regulatory Agencies

Consumer Protection and Product Safety

Environmental Protection and Global Warming

Antitrust Law and Unfair Trade Practices

Personal Property and Bailment

Real Property

Landlord Tenant Law and Land Use Regulation

Insurance

Accountants' Liability

Wills, Trusts, and Elder Law

Family Law

International and World Trade Law

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