Chapter 18b A limited liability company is a citizen of every state in which 

Document Type
Test Prep
Book Title
The Legal Environment of Business: Text and Cases: Ethical-- Regulatory-- Global-- and Corporate Issues 8th Edition
Authors
Frank B. Cross, Roger LeRoy Miller
1. Limited liability companies (LLCs) are governed by a federal LLC
statute.
1. The owners of a limited liability company enjoy limited liability.
1. A limited liability company can sue or be sued, enter into contracts,
and hold title to property.
1. A limited liability company is a citizen of every state in which it does
business.
1. The members of a limited liability company (LLC) are personally liable
for the wrongful acts or omissions of the LLC.
1. For federal income tax purposes, one-member limited liability companies
are automatically taxed as sole proprietorships.
1. Most states apply their limited liability company (LLC) statutes to an
LLC formed in another state.
1. If there is no limited liability company (LLC) agreement covering a topic
under dispute, the state LLC statute will govern the outcome.
1. A limited liability company must be managed by its members.
1. Most limited liability company statutes specify how members’ voting
rights must be apportioned.
1. A member of a limited liability company (LLC) has the power and the
right to dissociate from the LLC at any time.
1. Generally, a dissociated member of a limited liability company (LLC)
has the right to have his or her interest in the LLC bought out by the
other members.
1. When a limited liability company is dissolved, any member who did not
wrongfully dissociate may participate in the winding up process.
1. State law governs the formation of a limited partnership.
1. A limited liability partnership may exempt its partners from personal
liability for any partnership obligation.
1. In a limited partnership, a general partner has full responsibility for the
partnership and for all its debts.
1. In a limited partnership, limited partners have essentially the same right
as general partners to participate in management.
1. In a limited partnership, a general partner’s dissociation from the firm
may lead to dissolution.
1. Some states have passed laws prohibiting the withdrawal of general
partners from a limited partnership.
1. In a limited liability limited partnership, the liability of a general partner
is the same as the liability of a limited partner.
1. Jessica’s Jumpin’ Jelly Beans, LLC, is a limited liability company.
Unless indicated otherwise on Jessica’s federal tax form, the firm will
be taxed as
a. a cooperative.
b. a corporation.
c. a person.
d. a partnership.
1. China Bank is a foreign entitya firm owned and operated by investors
in a foreign country. With respect to an LLC in the United States,
China Bank can
a. act as a creditor, but cannot otherwise invest or participate.
b. become a member.
c. not become a member, but can participate in its operations.
d. not become a member or otherwise participate in its operations.
1. Fay is a member of Garden Groves LLC. Like other members of
limited liability companies, Fay’s liability for Garden Groves’s obligations
resembles the liability of
a. a limited partner who manages a limited partnership.
b. an owner of a sole proprietorship.
c. a general partner of a limited partnership.
d. a shareholder of a corporation.
1. High Pointe LLC’s members include Irvin. For purposes of holding title
to property, High Pointe is
a. an aggregate of Irvin 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.
1. Lars is considering forms of business organization for his auto repair
firm. Like most states, Lars’s state requires that to form a limited liabil-
ity company, he must file with a central state agency
a. articles of certification.
b. articles of formation.
c. articles of organization.
d. no specific documents.
1. Mit-E Mart LLC was formed in New Jersey. Mit-E Mart’s members are
Odel, who is a citizen of New Jersey, and Pola, who is a citizen of
New York. For federal diversity jurisdictional purposes, Mit-E is a citizen
of
a. all states.
b. New Jersey and New York.
c. New Jersey only.
d. no state.
1. Farm2Fork, LLC, is a limited liability company. Rather than distribute its
profits to its members, Energy wants to reinvest the profits in its
business. For this reason, Energy may prefer to be taxed as
a. a corporation.
b. a partnership.
c. a sole proprietorship.
d. a person.
1. Homer’s Remodeling, 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. franchise law.
1. Kris is a member of Laboratory Services, LLC, a limited liability
company. Kris can participate in the firm’s management
a. only to the extent that she assumes liability for the firm’s debts.
b. only to the extent of her investment in the firm.
c. to any extent.
d. to no extent.
1. Chocolate Sundry LLC’s members and managers are Devlin, Effie, and
Flavia. After Devlin’s relationship to the firm ends, Effie and Flavia
agree to discontinue the business. This is
a. illegal.
b. optional.
c. required.
d. wrongful.
1. Rick and Sandy are limited partners in Terrific Profit Enterprises, a
limited partnership. To avoid personal liability for partnership obligations,
they must not
a. acquire an interest in the firm.
b. contribute property to the firm.
c. engage in activities independent of the firm’s business.
d. participate in the firm’s management.
1. Genetic Innovations, 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 capital contributions, despite the agreement.
d. in proportion to each partner’s participation in the firm’s manage-
ment, despite the agreement.
1. Dunn and Etta are limited partners in Fancee Fashion Stores, a limited
partnership. In terms of the firm’s books, Dunn and Etta are entitled to
a. access in proportion to their participation in managing the firm.
b. access to the books directly related to their capital contributions.
c. no access.
d. total access.
1. Gizelle, Haya, and Ivy do business as Janitorial Services, Limited
Partnership. After Gizelle’s relationship to the firm ends, Haya and Ivy
agree not to continue the business. This is
a. dissociation.
b. dissolution.
c. gross negligence.
d. simple misconduct.
1. Brad is a general partner, and Carlos and Dora are limited partners, in
Eastside Physicians, a medical clinic and limited partnership. Refer to
Fact Pattern 18-1B. Carlos’s assignment of his interest in Eastside to
Good Credit Corporation results in
a. nothing with respect to Eastside’s existence.
b. the maturity of Eastside’s debts.
c. the suspension of Eastside’s business.
d. the termination of Eastside’s legal existence.
1. Brad is a general partner, and Carlos and Dora are limited partners, in
Eastside Physicians, a medical clinic and limited partnership. Refer to
Fact Pattern 18-1B. Brad’s dissociation from the firm results in
a. nothing with respect to Eastside’s existence.
b. the maturity of Eastside’s debts.
c. the suspension of Eastside’s business.
d. the termination of Eastside’s legal existence.
1. Brad is a general partner, and Carlos and Dora are limited partners, in
Eastside Physicians, a medical clinic and limited partnership. Refer to
Fact Pattern 18-1B. Eastside is dissolved and its assets are collected,
liquidated, and distributed. This results in
a. nothing with respect to Eastside’s existence.
b. the maturity of Eastside’s debts.
c. the suspension of Eastside’s business.
d. the termination of Eastside’s legal existence.
1. Connie, Drew, and Ellen are the general partners of Foreign Auto
Repair, a limited partnership. Connie dies. The partnership can
a. continue only after a distribution of its assets.
b. continue only as a general partnership.
c. continue only if Drew and Ellen consent.
d. not continue because Connie’s death dissolves the firm.
1. Hugh is a limited partner and Ida is a general partner in HI Volume, a
limited partnership. Joy is one of HI Volume’s creditors. On HI
Volume’s dissolution, the party whose rights have the first priority to the
firm’s assets is
a. Hugh and Ida.
b. Hugh only.
c. Ida only.
d. Joy only.
1. Bret is a general partner in Capitol Realty, LLLP, a limited liability lim-
ited partnership, which cannot pay its debts. Bret is personally liable for
the debts
a. in proportion to the number of partners in the firm.
b. to no extent.
c. to the extent of his capital contribution.
d. to the full extent.
1. Jack and Keri want to form Local Motion, LLC, a limited liability
company, to offer metro delivery and transport services. With respect to
the management of Local Motion, what are the members’ options?
1. Ron is a limited partner, and Steve is a general partner of Total
Financial Management, a limited partnership. Steve manages the firm.
Ron has some expertise in the area and believes that he could do a
better job than Steve at managing, but he abstains from becoming
actively involved. Why might he choose to keep away from
management activities?
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