Q&A Hero

Q: Any corporation that does not make money is classified as a nonprofit corporation.

Q: Officers and directors owe fiduciary duties to the corporation and its shareholders, however; none of the shareholders owe such duties because they cannot bind the company.

Q: Corporations may be created by written agreement between the principals and no strict or formal filing is required as long as the agreement is written.

Q: One benefit of the Subchapter S corporation is that there is no double taxation.

Q: A corporation is considered formed the moment the articles of incorporation are filed by the principals.

Q: To qualify for Subchapter S status, a supermajority of the shareholders must consent to the Subchapter S designation.

Q: A corporation exists as an independent person separate from its principals.

Q: Debentures are unsecured promises to pay back money with interest at a certain date backed by the strength of the general credit of the corporation.

Q: Corporate bylaws are public documents that must be filed with the appropriate state corporation office.

Q: The expiration date of a corporate bond is also called its _______.

Q: Owners of nonvoting stock who receive a share of the corporate profits have received what is called a _______.

Q: Private equity funding provided by a group of professional investors for use in developing a business is called _______.

Q: A corporate bond issued in the amount of $500,000 is called a ________ bond.

Q: The officer with the least amount of implied authority in relation to the other officers is the _______.

Q: In a minority of the states, the articles of incorporation are called the ________.

Q: A person who performs preincorporation duties on behalf of the forming corporation is called a _______.

Q: Officers, directors and controlling shareholders are often called _______.

Q: A corporation incorporated in Utah and doing business in Nevada is classified as ________ in Nevada.

Q: A lawsuit against an officer or director brought by a shareholder is called a ________ suit.

Q: An LLC: A.offers principals the same liability coverage as principals in corporations with taxation at the business entity level. B.offers principals the same liability coverage as principals in corporations with pass through taxation. C.offers principals the same liability coverage as general partners in a partnership with taxation at the business entity level. D.offers principals the same liability coverage as limited partners in a partnership with pass through taxation.

Q: Federal regulations regarding franchises are primarily designed to: A.ensure full disclosure of all information relating to a franchise company prior to a franchise investment. B.ensure the federal tax guidelines are met. C.ensure that the public is protected from fraud or other injuries. D.ensure that the franchisee has the requisite knowledge to manage a business and be sure the franchisee is not entering a business relationship they are not equipped to financially handle.

Q: LLPs are formed with the filing of a ________ with the proper public official. A.Statement of Qualification B.Certificate of Formation:LLP C.Record of Business Creation D.Articles of Organization

Q: Voting rights of LLC principals are governed by: A.state law where the LLC is filed. B.the Uniform Limited Liability Company Act. C.IRS regulations. D.the operating agreement.

Q: Burt has gone to a commercial bank to negotiate a loan for the LLC in which he is a member. He tells you that he is authorized to act on behalf of and to bind the company. What is the best way for you to verify whether Burt does in fact have the authority he claims? A.get him to sign a written statement B.call another member of the LLC for confirmation C.check the articles of organization D.nothing need be done because all LLC members have the right to bind the company as do general partners

Q: In 1997, the IRS: A.made LLCs more attractive by eliminating strict operating requirements to qualify as a partnership for tax purposes. B.made LLCs more attractive by changing the tax structure making LLCs more profitable to operate. C.made LLCs less attractive by increasing and redefining operating requirements to properly identify LLCs and weed out companies misfiling for tax break purposes. D.made LLCs less attractive by eliminating taxation at the business level making the LLC similar to the partnership for tax purposes.

Q: Typically, day to day decision making in an LLC is performed by: A.the individual principal who filed the initial paperwork to form the business. B.its board of directors. C.the top 10% principal investors. D.its managing members.

Q: LLPs were created to:A.limit taxation burdens existing in LLCs.B.ease the costs and filing requirements present with LLCs.C.provide limited protections for general partners increasing protections offered by LLCs.D.increase the duration of the business entity permitted under LLC statutes.

Q: Carlos is a member of an LLC along with three others. After one year, despite their best efforts, the business closes and the bank which extended them a loan sues for repayment. The bank may:A.sue Carlos for only 25% their loss under rules pertaining to LLCs.B.sue Carlos for the entire amount because Carlos is jointly and severally liable for the loss.C.sue Carlos only if he is a managing member.D.sue the LLC but may not sue Carlos.

Q: Franchisors are regulated by the: A.National Labor Relations Board. B.Federal Trade Commission. C.state law where the franchise is located. D.state law where the franchisor is located.

Q: The first LLP legislation was enacted in:A.New York.B.Texas.C.Florida.D.Iowa.

Q: Which of the following requires the most disclosures and is the most lengthy and complex to create? A.an LLC B.an LLP C.a limited partnership D.franchise

Q: The origins of LLPs were rooted in protection of: A.private service firm partnerships. B.private service firm sole proprietorships. C.professional service firm partnerships. D.professional service firm sole proprietorships.

Q: Formation of an LLC requires the filing of: A.Statement of Qualification. B.Certificate of Formation:LLC. C.Record of Business Creation. D.Articles of Organization.

Q: LLCs were originally created by the: A.New York legislature. B.California legislature. C.Wyoming legislature. D.Delaware legislature.

Q: Every state in the U.S. recognizes the existence of LLCs.

Q: Both managing members and controlling members owe a fiduciary duty to other members.

Q: The organizers of an LLC who sign the certificate of organization are required to be residents of the state that the LLC is being formed in.

Q: LLCs are required to name a member as its registered agent and may not use a commercial registered office provider.

Q: Some states recognize LLCs but do not permit partnership taxation at the state level.

Q: Many states have eased filing requirements to create an LLC from requiring extensive amounts of information to now requiring minimal information similar to that required in a corporate filing.

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: A corporation may be a principal of an LLC.

Q: The Uniform Limited Liability Company Act preempts all state laws in order to maintain consistence throughout the U. S. business community.

Q: States may require that LLPs carry liability insurance to protect clients and customers as a condition of LLP formation.

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: LLC members are always required to complete a Certificate of Membership Interest evidencing the individual member's interest the business entity.

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: Financial information provided to a prospective franchisee must be audited.

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: The operating agreement of the LLC often controls the amount and methods of capitalizing the business.

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: Jones LLC and Smith LLC both have ten members and five 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: Requiring a franchisee to purchase all franchise related materials and supplies, trademarked and otherwise, from the franchisor violates the Small Business Franchise Act.

Q: All states require LLPs to have a written partnership agreement.

Q: The IRS has classified the LLC as a type of corporation for tax purposes.

Q: Partners in an LLP may choose to have LLP income taxed as a corporation.

Q: The management structure of a member-managed LLC is similar to that of a general partnership.

Q: When a member of an LLC dies, the business entity automatically ceases to exist.

Q: LLPs may choose to be taxed like a corporation or choose pass-through taxation treatment.

Q: The name of an LLC must contain a designator such as "Company", "Limited", "Limited Liability Company" or "LLC".

Q: The Certificate of Organization may restrict members of an LLC to only those possessing a professional license in a named field.

Q: LLCs are not permitted to capitalize by selling equity ownership in the LLC itself.

Q: LLCs may choose to be taxed as a pass through entity or may elect to be taxed as a corporation.

Q: Some states do not require a written management agreement regarding LLCs.

Q: LLCs are frequently governed by agreement of the parties called an LLC agreement or _______.

Q: Restrictions and protections contained in a franchise agreement are called _______.

Q: Corporate tax structures result in ________ taxation.

Q: LLC laws define dissolution of an LLC as a ________ process.

Q: An LLC member with ownership sufficient to decide or veto internal operational matters is called a ________ member.

Q: Business Trusts are also known as ________ trusts.

Q: The business entity in a franchise arrangement that has the record of success and allows others to operate a business using their trade mark and products is called the _______.

Q: The procedure for collecting additional capital contributions from partners as necessary is called _______.

Q: ________ are those who start up an LLC initially.

Q: Owners in an LLC are called _______.

Q: How do member-managed and manager-managed LLC management structures differ?

Q: Explain the following statement from the text. "A franchise should be thought of as a method of conducting business rather than a business entity".

Q: John, Paul Mark and Luke have been operating an LLC and according to the operating agreement, the term of the LLC is set to expire in the near future. What options do the four partners have?

Q: What is meant by the term "capital call"? Under what circumstances might it occur and how does it affect partners?

Q: Explain the similarities and differences, if any, with regard to tax treatment of LLCs and LLPs.

Q: What was the effect of the creation of the LLC on those seeking to open a new business?