Chapter 38
Limited Liability Companies
and Special Business Forms
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
A1. A limited liability company can be taxed as a partnership.
A2. Limited liability companies (LLCs) are governed by state LLC statutes.
A3. Foreign investors are not allowed to become limited liability company members.
A4. A limited liability company (LLC) formed in one state but doing business in another
state is referred to in the second state as a foreign LLC.
A5. A limited liability company is not a citizen of any state.
A6. A limited liability company as an entity is not liable for the wrongful acts or omissions
of its members.
A7. The liability of the members of a limited liability company is limited to the amount of
their investments.
A8. A limited liability company, as an entity, pays no taxes.
A9. A limited liability company that has only one member cannot be taxed.
A10. State limited liability company statutes are uniform.
A11. In many states, an operating agreement is not required for a limited liability company
to exist.
A12. A limited liability company must be managed by non-member managers.
A13. Most limited liability company statutes have no provisions regarding members’
meetings.
A14. Some states provide that in the absence of an agreement to the contrary each
member of a limited liability company has one vote.
A15. When a member dissociates form a limited liability company, the member’s duty of
loyalty continues.
A16. Normally, a dissociated member of an limited liability company (LLC) has the right to
force the LLC to dissolve.
A17. A joint venture resembles a partnership but is taxed like a corporation.
A18. A joint venturer can be held personally liable for the venture’s debts.
A19. The members of a joint venture have more implied and apparent authority than the
partners in a partnership.
A20. A business trust resembles a corporation.
MULTIPLE CHOICE QUESTIONS
A1. Sustainable Café LLC is a limited liability company. Like any other LLC, unless
Sustainable Café chooses otherwise, the firm will be taxed as
a. a corporation.
b. a joint venture.
c. a partnership.
d. a cooperative.
A2. Esteban and Florian want to form a limited liability company (LLC) to manage their
business, Gordian Nuts. LLC statutes have been adopted in
a. all states.
b. no states.
c. less than one-fifth of the states.
d. only Wyoming and Florida.
A3. Bee Hive Honey, LLC’s members include Chad. For purposes of suing and being sued,
Bee Hive Honey is
a. an aggregate of Chad and the other members.
b. a natural person in the members’ “family.”
c. a legal entity apart from the owners.
d. a non-participating third party.
A4. Greta is a member of Hovercraft LLC. As a member, Greta is
a. a manager or officer, but not an owner.
b. an investor, but not a manager, officer, or owner.
c. an owner.
d. a participant, but not an investor, manager, officer, or owner.
A5. Coco is considering forms of business organization for her concessions business—
Coco’s Cupcakes. Most states require that a limited liability company have at least
a. no minimum number of members.
b. at least one member.
c. at least two members.
d. at least three members, including at least one general partner.
A6. Location! Realty LLC is a limited liability company (LLC). Like other LLCs, for federal
jurisdictional purposes, Location! Realty is most likely a citizen of
a. all states.
b. every state in which its members are citizens.
c. no state.
d. only the state in which it was formed.
A7. Jay is a member of Kappa, LLC, a limited liability company. Jay is liable for Kappa’s
debts
a. in proportion to the total number of members.
b. to the extent of his investment in the firm.
c. to the extent that the other members do not pay the debts.
d. to the full extent.
A8. B2B, LLC, is a limited liability company. Among its members, a dispute arises that the
operating agreement does not cover. The dispute is governed by
a. the applicable state LLC statute.
b. the federal Uniform LLC Law.
c. the principles of partnership law.
d. the state corporation statute.
A9. 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.
A10. Cecilia’s Day Spa, LLC, is a member-managed limited liability company. If the law in
Cecilia’s state is like the law in most states, unless the members have agreed
otherwise, voting rights are apportioned according to
a. capital contributions.
b. participation in management.
c. the number of members.
d. transactions with the firm.
NAT: AACSB Reflective AICPA Legal
A11. Flip is a member of Great States Trucking LLC. Flip’s relationship to Great States ends,
but the firm continues to do business. This is
a. dissociation.
b. dissolution.
c. winding up.
d. wrongful.
A12. Build-Rite Construction Corporation and Deals-R-Us, Inc., combine their efforts to
build an entertainment complex. Their form of business organization is
a. a business trust.
b. a joint stock company.
c. a joint venture.
d. a syndicate.
A13. Binary Corporation and Coda, Inc., two software firms, wish to combine their research
and development capabilities to make a special, limited edition computer game. The
appropriate legal entity for this project is most likely
a. a business trust.
b. a joint stock company.
c. a joint venture.
d. a syndicate.
A14. Rafaela Art Gallery and Sequoia Exhibitions form a joint venture. When a dispute
arises, Rafaela files a suit against Sequoia. The court is most likely to apply the same
principles to this joint venture as it applies to
a. business trusts.
b. cooperatives.
c. corporations.
d. partnerships.
A15. Delta Music Company and eDistribution & Marketing Corporation form a joint stock
company. A joint stock company can be formed for, at the most,
a. an implied duration of not more than six months.
b. a perpetual existence.
c. a single activity or transaction.
d. a stated duration of not more than one year.
A16. Owen, Petunia, Quentin, and Rita combine to finance the building of Surfside Stores, a
waterfront shopping mall. Their selected form of business organization is an in–
vestment group, or
a. a business trust.
b. a joint stock company.
c. a joint venture.
d. a syndicate.
A17. Accumulated Capital Corporation and Business Funds, Inc., form a joint stock
company. The ownership of a joint stock company is represented by
a. partnership certificates.
b. shares of stock.
c. title documents.
d. trust certificates.
A18. Downwind Land Corporation and Leeward Investments Company transfer their
property to Financial Managers, Inc., which manages the property and distributes the
profits to Downwind and Leeward. This form of a business organization is
a. a business trust.
b. a joint stock company.
c. a joint venture.
d. a syndicate.
A19. Vela and other farmers in Washington County form a business organization to
provide, without profit, an economic service to its members. This is
a. a business trust.
b. a cooperative.
c. a corporation.
d. a joint stock company.
A20. Buyers Club is an incorporated cooperative. Like other incorporated cooperatives,
Buyers Club distributes profits to its owners on the basis of
a. the amount of capital they contribute.
b. the degree to which they participate in management.
c. their transactions with the cooperative.
d. the requirements of the state in which it was incorporated.
ESSAY QUESTIONS
A1. Petra. Queenie, and Randall want to form Sales-to-Infinity, LLC (limited liability
company). What should they provide in their operating agreement? If they fail to
include some important operating details, what determines these details?
A2. Alpha Communications, a partnership, publishes consumer periodicals, including
Science Today. Beta Publications, also a partnership, publishes professional
periodicals, including Technology Review. Alpha and Beta agree to pool their
resources in a one-time deal to print and market a book, Unlimited Future. In
contracting with Gamma Printing Supplies, Inc., for paper to print the book, Alpha
commits fraud. In contracting with Delta Literary Agency for articles to use in
Technology Review, Beta commits fraud. Gamma and Delta file suits against Alpha and
Beta. What type of business organization has Alpha and Beta formed? To whom, if
anyone, is Alpha liable? To whom, if anyone, is Beta liable?
