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Business Law
Q:
An LLC is required to name a member as its registered agent and may not use a commercial registered office provider.
Q:
The organizers of an LLC, who sign the certificate of organization, are required to be residents of the state in which the LLC is being formed.
Q:
Both managing members and controlling members owe a fiduciary duty to other members.
Q:
When completing the certificate of organization, the organizers of an LLC are not required to disclose how the business is to be managed.
Q:
The Uniform Limited Liability Company Act preempts all state laws in order to maintain consistency throughout the U.S. business community.
Q:
LLPs may be capitalized through debt from private or commercial lenders.
Q:
Trish is a partner in an LLP, and the partnership is having a cash flow problem. To alleviate the problem, the partnership has initiated a capital call for each partner to contribute an additional $25,000 to the business. If Trish cannot come up with the necessary funds, she may be forced to sell her interest in the partnership.
Q:
LLC members are always required to complete a certificate of membership interest, evidencing the individual member's interest in the business entity.
Q:
LLCs are pass-through entities for tax purposes; however, LLPs are taxed at the entity level without tax liability passing to partners other than their personal salary income if any.
Q:
States may require that LLPs carry liability insurance to protect clients and customers as a condition of LLP formation.
Q:
About half of the states provide the same level of protection to general partners in an LLP as is provided to a limited partner in a limited partnership.
Q:
An LLC can last until a specified term expires.
Q:
Jones LLC and Smith LLC both have 10 members and 5 managing members. Both entities go into dissolution. The procedures for dissolution, including preferences of members in terms of who is paid first and so on, will be identical for both companies.
Q:
In an LLC, the members may act as agents of the LLC, but they will not be personally liable to third parties who successfully sue the LLC.
Q:
The operating agreement of the LLC often controls the amount and methods of capitalizing the business.
Q:
The name of an LLC must contain a designator such as "Company," "Limited," "Limited Liability Company," or "LLC."
Q:
LLPs may choose to be taxed like a corporation or choose pass-through taxation treatment.
Q:
When a member of an LLC dies, the business entity automatically ceases to exist.
Q:
The management structure of a member-managed LLC is similar to that of a general partnership.
Q:
Partners in an LLP may choose to have LLP income taxed as a corporation.
Q:
The IRS has classified the LLC as a type of corporation for tax purposes.
Q:
All states require that LLPs have a written partnership agreement.
Q:
LLCs may choose to be taxed as a pass-through entity or may elect to be taxed as a corporation.
Q:
LLCs are not permitted to capitalize by selling equity ownership in the LLC itself.
Q:
The certificate of organization may restrict membership in an LLC to only those possessing a professional license in a named field.
Q:
LLCs are frequently governed by an agreement of the parties called an LLC agreement or _______.
Q:
In an LLP, generally all partners have liability protection for _______ and liabilities of the partnership.
Q:
________ are those who start up an LLC initially.
Q:
The procedure for collecting additional capital contributions from partners as necessary is called a _______.
Q:
Limited liability partnerships are formed when a general partnership files a ___________.
Q:
Some states provide liability shields for LLP partners only when the liability arises from some __________ by another partner.
Q:
An LLC member with ownership sufficient to decide or veto internal operational matters is called a ________ member.
Q:
Limited Liability Companies and Limited Liability Partnerships
Q:
Describe the common terms of a franchise agreement that govern the relationship between franchisee and franchisor.
Q:
Charlie and Mia have started selling T-shirts with iron-on decals and lettering. They have no formal written agreement and simply decided to split all profits equally. Each has contributed $1,000 to the enterprise, and since Mia will be doing all of the work, Charlie agrees that he will be responsible for 75 percent of any losses. Charlie does call in to make day-to-day decisions, but Mia purchases the shirts, decals, and lettering, operates the press, and runs the store. Charlie stays home and smokes cigars and drinks scotch. Alan purchases one of their shirts and, after wearing it all day, discovers that the dye has run and his upper body is now blue. After bathing numerous times, he finds that the blue dye will not wash off. Alan sues and is awarded $100,000 in damages. Charlie claims that there was no real business entity formed and that he should not be liable. How will the court decide?
Q:
How is the Revised Uniform Partnership Act similar to the Uniform Commercial Code in terms of gap filling?
Q:
A franchise should be thought of as:
A. a type of business entity.
B. a federally regulated business entity.
C. a contractually based business entity.
D. a method of conducting business.
Q:
Bill is a general partner in a four-member limited partnership with two general and two limited partners. The partnership is silent with regard to the duration of the partnership, and Bill wishes to retire.
A. Bill may withdraw at any time, and the partnership continues.
B. Bill must give six months' notice before being permitted to withdraw.
C. The other general partner and the limited partner with the largest liability must agree to his withdrawal.
D. The court must grant permission for Bill to withdraw since the agreement was silent and the other partners and third-party customers of the partnership must be protected.
Q:
Roger is a limited partner in a business. To retain his limited liability protection, he must not:
A. participate in the approval of new partners.
B. participate in the removal of existing partners.
C. consult or be paid by the business.
D. assume management responsibilities.
Q:
A general partnership may be formed by:
A. oral agreement.
B. written agreement.
C. either oral or written agreement.
D. oral, written, or implied agreement.
Q:
Sam and Dave are going to open a sporting goods store. They sign a written limited partnership agreement naming Dave as a limited partner and Sam as the general partner. Sam files a certificate of limited partnership with the state. Sam contributes $100,000 toward the start-up, while Dave contributes $200,000. They agree to split profits evenly because Sam will be working in the store and operating the day-to-day business. About a month after they open, the business is not doing well, so Dave starts becoming more involved. Soon he is requiring that Sam approve all purchases with him, and Dave is actively directing Jack, the sole other employee. One day, Geoff, a customer, is injured when a bowling ball falls off a shelf and shatters his foot. Geoff sues and is awarded a judgment of $1 million.
A. As this was a limited partnership, Sam is liable for $800,000 and Dave is liable for $200,000.
B. Sam and Dave are each liable for up to $500,000.
C. Under the circumstances, Sam and Dave are both jointly and severally liable for the full $1 million.
D. Whoever negligently secured the bowling ball on the shelf is liable for the $1 million liability.
Q:
Which of the following does not require two or more principals?
A. limited partnerships
B. limited liability partnerships
C. sole proprietorships
D. limited liability companies
Q:
Principals generally have no personal liability for the business entity's debts regarding:
A. limited partnerships.
B. limited liability partnerships.
C. corporations.
D. limited liability companies.
Q:
Which of the following does not require the filing of a form with a government agency to come into existence?
A. a general partnership
B. a limited liability company
C. a corporation
D. a limited partnership
Q:
Which of the following does not require a duty of care or good faith to other principals?
A. a sole proprietorship
B. a general partnership
C. a limited partnership
D. a family limited partnership
Q:
Mike lends money as a business loan to Kathy, who is capitalizing her start-up sole proprietorship named Kathy's Things. If Mike must sue for repayment, he would sue:
A. Kathy.
B. Kathy's Things.
C. Kathy and Kathy's Things.
D. no one, since the loan makes him a partner.
Q:
A business that exists in fact, although not formally recognized, is referred to as being:
A. de facto.
B. de jure.
C. de minimus.
D. de legal.
Q:
Lisa and Tara are operating a business as a general partnership without an express partnership agreement. Should a dispute arise, the courts will look to ________ to resolve the issue regarding operation of the partnership.
A. common law
B. state contract law
C. the Revised Uniform Partnership Act
D. federal contract law
Q:
Which of the following require(s) a formal filing to be recognized as a valid business entity?
A. a sole proprietorship
B. a general partnership
C. a limited partnership
D. all business entities
Q:
Dissolving a limited partnership requires:
A. a unanimous vote among all partners.
B. a unanimous vote of the general partners and a majority vote of the limited partners.
C. a unanimous vote of the general partners and consent of any limited partner who owns a majority of the rights to receive a distribution as a limited partner.
D. a unanimous vote of the limited partners and consent of any general partner who owns a majority of the rights to receive a distribution as a general partner.
Q:
Regarding limited partners:
A. they may withdraw from the partnership at any time but they forfeit their investment if they withdraw early.
B. they may not withdraw before the time that the partners have agreed the partnership will terminate.
C. if the partnership agreement is silent as to notice required prior to termination, 90 days' written notice is required before the limited partner may withdraw.
D. they must obtain a court order to withdraw because of their limited liability and its effect on the remaining partners and third parties dealing with the business.
Q:
A disadvantage of the sole proprietorship is:
A. the difficulty of formation.
B. the inflexibility of management and control.
C. the unlimited liability of the principal.
D. the double taxation that occurs.
Q:
A limited partnership requires:
A. at least two general partners.
B. at least two limited partners.
C. a written limited partnership agreement.
D. at least one general and one limited partner.
Q:
Redrock GP has decided to go out of business. Selling the partnership assets and making payments to creditors will occur during the ________ phase of the closing of a partnership.
A. dissolution
B. dissociation
C. winding-up
D. termination
Q:
A partnership is considered fully terminated:
A. after dissociation.
B. after winding up.
C. after dissolution.
D. after the termination certificate is properly filed.
Q:
Which of the following is not an option available to a general partnership seeking capitalization?
A. borrowing money from one or more of the partners
B. selling the right to a percentage of the profits to an investor
C. selling ownership rights through the public markets
D. borrowing money from a commercial lender
Q:
Harry wants to start a personal training business. He should choose a sole proprietorship entity if he seeks:
A. limited liability.
B. perpetual existence for the new company.
C. the ability to raise capital by selling equity in the business.
D. the ability to avoid management conflict.
Q:
With regard to taxation of partnerships:
A. a partnership files a federal and state partnership tax return and pays taxes on its income.
B. a partnership must file an information return.
C. a partnership files a state partnership tax return and pays taxes on its income but no federal filing is required.
D. partnerships have no tax-filing responsibilities.
Q:
Bob, Carol, and Ted have decided to go into business as a limited partnership importing and selling exotic spices. Bob and Carol will manage the business, and Ted will have no role in the day-to-day operations. Bob and Carol have each invested $500,000, and Ted has contributed the building and land that the business will be operated from. Alice, a customer, contracts a rare disease from a contaminated spice sold by the company and sues. Alice is awarded a judgment for $5 million. After she exhausts the assets of the partnership, having the property and building sold and seizing all other property, $3 million remains unpaid.
A. Bob, Carol, and Ted each owe $1 million, and Alice must sue each for his or her part.
B. Bob, Carol, and Ted each owe $3 million jointly and severally, so Alice may sue one, two, or all three for the $3 million balance.
C. Bob and Carol each owe $1.5 million, and Alice must sue each for his or her part; Ted has no additional liability.
D. Bob and Carol each owe $3 million jointly and severally, so Alice may sue one or both of them; Ted has no additional liability.
Q:
In a general partnership:
A. profits and losses must be split equally among the partners.
B. an unequal split of profits may be agreed to based on the partnership agreement, but losses must be split equally.
C. profits must be split equally, but losses may be split unequally based on the partnership agreement.
D. profits and losses may be unequally split based on the partnership agreement.
Q:
Franchises are regulated by a franchise agreement.
Q:
Steve has opened a sole proprietorship bicycle shop. The business shows a net income of $100,000. Steve took a salary of $40,000. The remaining money is left in the bank.
A. At tax time, the business pays taxes on $100,000, and Steve pays taxes on $40,000.
B. At tax time, the business pays taxes on $140,000.
C. At tax time, Steve pays taxes on $140,000.
D. At tax time, the business pays taxes on $70,000, and Steve pays taxes on $70,000.
Q:
Frank and Jesse are operating as a general partnership. A question has arisen that is not covered under their partnership agreement and also not addressed by the Revised Uniform Partnership Act. What will the courts do to resolve the situation?
A. dissolve the partnership and allow them to reform
B. look to foreign partnership laws because the RUPA encompasses all U.S. partnership law
C. look to common law
D. look to the UCC for a gap filler
Q:
The Revised Uniform Partnership Act mandates that with regard to partnership debts and liabilities, general partners are:
A. not personally liable for non debt liabilities, which may be charged only to the partnership, but personally liable for debts.
B. personally jointly liable for unpaid debts and liabilities.
C. personally jointly and severally liable for unpaid debts and liabilities.
D. not personally liable for debts or liabilities, which may be charged only to the partnership.
Q:
Jonathan has graduated and wants to start a business. Which business entity gives him the most complete and exclusive control over the business and any business decisions?
A. sole proprietorship
B. limited liability company
C. corporation
D. general partnership
Q:
The Revised Uniform Limited Partnership Act requires that there be a written partnership agreement regarding limited partnerships.
Q:
If a sole proprietorship loses money, the principal may deduct the losses from her or his own personal tax liability, if any.
Q:
A limited partnership is required to have two or more limited partners.
Q:
To date, every state in the union has adopted the Revised Uniform Partnership Act except the state of Louisiana.
Q:
One disadvantage of a sole proprietorship business entity is that it is restricted to a single location and cannot expand.
Q:
In the absence of an agreement to the contrary, the Revised Uniform Partnership Act mandates that general partnership profits be split equally among the partners.
Q:
If a limited partner actively participates in day-to-day management of the business, he or she may forfeit limited partner status and lose limited liability for debts and liabilities.
Q:
An advantage of operating as a sole proprietorship is that personal liability for any business losses is limited to the owner's investment in the business.
Q:
If someone successfully sues a sole proprietorship, he or she must exhaust the businesses assets before going after the principal's personal assets.
Q:
In United States v. Morton, Morton was declared a general partner despite all paperwork, including tax returns, naming her as a limited partner because of her conduct.
Q:
A limited partnership is formed by the limited partner's filing of a certificate of limited partnership with the appropriate state government authority.
Q:
Family limited partnerships are designed solely for estate planning and asset distribution for wealthy families.
Q:
Robert and Philip are operating a general partnership. Under the Revised Uniform Partnership Act, if Robert rightfully or wrongfully dissociates from the partnership, the partnership continues to exist.
Q:
Sole proprietorships may sell equity in the company in order to raise funds.
Q:
Even if the parties have no intent to form or operate as a partnership, their conduct may result in the law recognizing them as partners.