Chapter 41- Limited Liability Companies and Limited Partnerships

1. Beth and Carl want to form a limited liability company (LLC) to manage their seven Movie Time Video rental stores. LLC statutes have been adopted in

a. all states.
b. a majority of states.
c. only foreign countries.
d. only Wyoming.

ANSWER: A PAGE: 806 TYPE: =

2. Computer Networks, LLC, is a limited liability company. Unless indicated otherwise on Computer Networks' federal tax form, the firm will be taxed as

a. a corporation.
b. a partnership.
c. a sole proprietorship.
d. none of the above.

ANSWER: B PAGE: 807 TYPE: =

3. Bill is considering forms of business organization for his Web site consulting firm. Most states require that a limited liability company have

a. no members.
b. one member.
c. two members.
d. three members, including at least one general partner.

ANSWER: B PAGE: 808 TYPE: =

4. Cathy is considering forms of business organization for her advertising-art firm. Like most states, Cathy's state requires that to form a limited liability company, she must file, with a central state agency, articles of

a. certification.
b. incorporation.
c. organization.
d. none of the above.

ANSWER: C PAGE: 808 TYPE: =


5. Interstate Trucking, LLC, is a limited liability company. Jack, an Interstate driver, is in an accident in New Jersey with Owen, a citizen of New York. Owen files a suit against Interstate in a federal district court. For purposes of federal court jurisdiction, the citizenship of Interstate is the same as the citizenship of

a. Interstate Trucking's members.
b. Jack.
c. the state of Interstate Trucking's formation.
d. none of the above.

ANSWER: A PAGE: 809 TYPE: =

6. Sally is considering forms of business organization for her construction-equipment business. For purposes of owning property and being a party to litigation, forms that are legal entities separate from their owners include

a. corporations only.
b. limited liability companies only.
c. corporations and limited liability companies.
d. none of the above.

ANSWER: C PAGE: 809 TYPE: =

7. Jill is considering forms of business organization for her general-merchandise wholesale business. One advantage of the limited liability company form, with respect to tax options, is its

a. flexibility.
b. lack of options.
c. rigidity.
d. none of the above.

ANSWER: A PAGE: 809 TYPE: =

8. International Investments, LLC, is a limited liability company. Rather than distribute its profits to its members, International wants to reinvest the profits in its business. For this reason, International may prefer to be taxed as

a. a corporation.
b. a partnership.
c. a sole proprietorship.
d. none of the above.

ANSWER: A PAGE: 809 TYPE: =

9. General Construction, LLC, is a limited liability company. Among the members, a dispute arises that their operating agreement does not cover. The dispute is governed by

a. the applicable state LLC statute.
b. the federal Uniform LLC Law.
c. the International LLC Governing Resolution.
d. none of the above.

ANSWER: A PAGE: 810 TYPE: =

10. Computer Games, LLC, is a limited liability company. Among the members, a dispute arises that their operating agreement does not cover. No statute applies. The dispute is governed by the principles of

a. corporate law.
b. partnership law.
c. sole proprietorship law.
d. none of the above.

ANSWER: B PAGE: 810 TYPE: =

11. CPA Accounting, LLC, is a limited liability company. If the law in CPA's state is like the law in most states, unless the members have agreed otherwise, participants in the firm's management will be considered to include

a. all members.
b. no member.
c. one member.
d. two members, including at least one general partner.

ANSWER: A PAGE: 810 TYPE: =

12. Adam is a member of Software Games, LLC, a limited liability company. Adam can participate in the firm's management

a. only after agreeing to assume full liability for the firm's obligations.
b. subject to liability for the firm's obligations to the extent of a general partner.
c. subject to liability for the firm's obligations to the extent of his participation.
d. without full liability for the firm's obligations.

ANSWER: D PAGE: 811 TYPE: =

13. Web Services, LLC, is a member-managed limited liability company. If the law in Web's state is like the law in most states, unless the members have agreed otherwise, decisions are made by

a. majority vote.
b. minority vote.
c. plurality vote.
d. seniority vote.

ANSWER: A PAGE: 811 TYPE: N

14. Gail & Hale, Accountants, LLP, is a limited liability partnership. If the law in Gail & Hale's state is like the law in most states, the law that applies to their firm is

a. corporate law.
b. partnership law.
c. sole proprietorship law.
d. none of the above.

ANSWER: B PAGE: 811 TYPE: =

15. Marie is considering forms of business organization for her law firm. One advantage of the limited liability partnership form is that it allows partners to avoid personal liability for

a. their acts of malpractice.
b. the malpractice of other partners.
c. the obligations of the firm beyond the partners' capital contributions.
d. the obligations of the firm within the limit of partners' capital contributions.

ANSWER: B PAGE: 811 TYPE: =

16. Excel Accounting Service, LLP, is a limited liability partnership that does business in the state in which it was formed and in a neighboring state. The two states provide different liability protection. If the law in the neighboring state is like the law in most states, the law that determines the liability of Excel is the law of

a. any third, "neutral" state.
b. Texas, the first state to enact an LLP statute.
c. the state in which Excel was formed.
d. none of the above.

ANSWER: C PAGE: 812 TYPE: =

17. Donna and Earl are partners in The Law Firm, LLP, a limited liability partnership. Donna supervises Earl. Earl negligently fails to appear in court on behalf of Frank, a client. Frank sues Donna and Earl. If the principle of proportionate liability is applied, Donna will likely be held liable for

a. her portion of responsibility for Earl's negligence.
b. the amount of the loss that Earl is unable to pay.
c. the entire loss.
d. none of the above.

ANSWER: A PAGE: 812 TYPE: =

18. Orchard Farms is a family limited liability partnership (FLLP). In an FLLP, all of the partners must be

a. natural persons only.
b. persons acting as fiduciaries for natural persons only.
c. natural persons or persons acting as fiduciaries for natural persons.
d. none of the above.

ANSWER: C PAGE: 812 TYPE: =

19. Mary, Nick, and Owen want to form a limited partnership to manage MN&O Services. A limited partnership must have at least

a. one general partner and one limited partner.
b. one general partner and two limited partners.
c. two limited partners.
d. none of the above.

ANSWER: A PAGE: 812 TYPE: +

20. Biotech Investments, LP, is a limited partnership. The partners sign an agreement purporting to state how the firm's profits and losses are to be divided. The profits and losses of the firm will be divided

a. according to the agreement.
b. equally, despite the agreement.
c. in proportion to each partner's capital contribution, despite the agreement.
d. in proportion to each partner's participation in the firm's management, despite the agreement.

ANSWER: A PAGE: 813 TYPE: =

21. Best Management Associates, LP, is a limited partnership. In a limited partnership, as in a general partnership, the capital contribution of the partners must be set as

a. a mandatory amount.
b. a maximum amount.
c. a minimum amount.
d. none of the above.

ANSWER: D PAGE: 813 TYPE: =

22. Roy, Sam, and Tina agree to form a computer peripherals mail-order business. Roy agrees to manage the business and to assume full personal liability. Sam and Tina agree to invest in the firm but to be liable only to that extent. These three have formed

a. a limited liability company.
b. a limited liability partnership.
c. a limited partnership.
d. none of the above.

ANSWER: C PAGE: 814 TYPE: =

23. Alice, Bob, and Carol want to form a limited partnership to manage two restaurants: Alice's Restaurant and Bob's Deli. In most states, a limited partnership will be created when

a. a certificate of limited partnership is filed.
b. a partnership agreement is executed.
c. the partners make their capital contributions.
d. none of the above.

ANSWER: A PAGE: 814 TYPE: =

24. Don and Elaine are limited partners in Great Stores, a limited partnership. In terms of the firm's books, Don and Elaine are entitled to

a. access in proportion to their participation in the management of the firm.
b. access to those parts that directly relate to their capital contributions.
c. no access.
d. total access.

ANSWER: D PAGE: 814 TYPE: =

25. A-1 Capital, LP, is a limited partnership. In terms of their rights in the firm, A-1's limited partners have, with some limitations, in relation to the general partners, essentially

a. some, but less, rights.
b. more rights.
c. no rights.
d. the same rights.

ANSWER: D PAGE: 814 TYPE: N

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