BUL Unit 15
In a Limited Partnership, the General Partner's fiduciary duty is ______. A duty to ensure all Limited Partners has an equal voice in partnership affairs and decisions. A duty to ensure that the General Partner optimizes his or her investment in the partnership. A duty of good faith and fair dealing to all partners in the partnership. A duty to minimize financial risks taken on by all Limited Partners in the partnership.
A duty of good faith and fair dealing to all partners in the partnership.
A surety owes a ____ to the principal for any profits obtained after the surety performs. Duty to Account Debt Thank you note ice cream
Duty to Account
A creditor can never be required to give the surety notice that the debtor is in default. True False
False
A creditor in possession of collateral given to him or her by the principal may return it to the principal without the consent of the surety. True False
False
A creditor must exhaust his or her judicial remedies against the principal before seeking to recover from the surety. True False
False
A member of an LLC can never be personally liable for the debts of the LLC. True False
False
A surety and guarantor have always been treated as the exact same thing. True False
False
A suretyship provides a lien credit a legal interest in the property of the debtor to secure repayment of the loan. True False
False
An "improvement" to real property necessarily increases the market value of the real property. True False
False
An artisan's lien is a special lien that applies exclusively to the liens artist receive on artwork they personally performed. True False
False
An artisan's lien is always assignable. True False
False
Any profits which a surety makes when called upon to perform the principal's duties belong to the surety. True False
False
Bob voluntarily surrender's a watch that he repaird back to the owner. Bob had a lien on the property for the value of his labor. Bob later re-acquires the property. Bob has now revived his lien since he was able to re-acquire possession of the property. True False
False
Bonding companies are usually uncompensated sureties. True False
False
If you form an LLC you are required to have a written operating agreement. True False
False
In a limited partnership, each limited partner has an equal right to participate in the management of the business. True False
False
Individual members of the LLC can never bind the LLC in a valid and enforceable contract. True False
False
LLC combine the limited liability of the partnership and the tax advantages of corporations. True False
False
Lack of capacity and discharge in bankruptcy are two common defenses that are available to a surety that may be asserted against a creditor. True False
False
Limited Liability Companies are one of the oldest forms of business organization True False
False
Limited Partnerships offer a convenient way for professional and family-owned enterprises to do business. True False
False
Limited partnerships must have one general partner for every seven limited partners. True False
False
Misconduct of the principal that induces a party to become a surety allows that surety to avoid the contract. True False
False
The Statute of Limitations does not apply to surety contracts. True False
False
The Statute of Limitations does not apply to surety contracts. True False
False
The general contractor is eligible for a mechanic's lien on the real property, but the subcontractors on the project are not. True False
False
The general contractor is eligible for a mechanic's lien on the real property, but the subcontractors on the project are not. True False
False
The owner may be liable for more than the contract price even if they follow the statutory procedures. True False
False
The release of the principal always releases the surety. True False
False
The surety relationship requires good faith, but not fair dealing. True False
False
When a ________ is purchased, a bonding company promises to pay an employer any loss, not to exceed a stated amount, caused by the covered employees' embezzlement. Performance bond. Fidelity bond. Security agreement. Nonperformance bond.
Fidelity bond.
____ is a proceeding by which a plaintiff seeks to reach the assets of the defendant that are in the hands of a third party. Garnishment Writ of Execution Habeus Corpus Burglary Attachment
Garnishment
In which of the following business forms are profits taxed at both the entity level and the owner level? General corporation Limited Partnership LLC LLP
General Corporation
Which business entity has the following characteristics: liability of the owners is limited to their investments; ownership interest is easily transferrable and there are no legal limits to the number of owners; owners elect the managers of the business who operate under duties of loyalty and due care; the entity is organized under state law and may have perpetual existence; profits are subject to double taxation?
General Corporation
Which of the following usually provides an investor the least protection from personal liability for the debts of the business? General Partnership Limited Partnership LLC Corporation
General Partnership
Which business entity has the following characteristics: owners are normally professionals engaged in selling their services; owners have both limited liability for the debts of the entity and limited liability for the contracts and torts of the other owner-professionals; the entity is organized under state law; profits are taxed only at the owner level? General partnership Limited partnership Limited Liability Partnership Limited Liability Company
Limited Liability Partnership
All of the following could be recognized as advantages of doing business as a limited partnership, except: A limited partnership allows limit partners to be liable only to the extent of their capital contribution. Limited partners can actively share in management of the partnership, without incurring the risks of business liabilities. Limited partners can invest in a partnership while effectively protecting their personal assets. A Limited Partnership is often a convenient and attractive option to investors.
Limited partners can actively share in management of the partnership, without incurring the risks of business liabilities.
An LLC in which non-owners are hired to run the day to day activities of the firm is a ______LLC. Member-managed Manager-managed Proprietary Subchapter S
Manager-managed
A lien for the value of material and labor expended in the construction of buildings and other improvements is a ____ . Mechanic's lien Atsy lien UCC 9 lien General power lien
Mechanic's lien
An LLC that is managed by one or more of the owners is a ____________________LLC. Member-managed Manager-managed Proprietary Subchapter S
Member-Managed
Which of the following is a quality that an LLC shares with a corporation? Members are only personally liable for debts to the extent of the money they put into the business. Members of an LLC usually have little to no control in major business decisions. An LLC and a corporation are treated identically for tax purposes. Both an LLC and a corporation require complex and costly procedures and filings before they can legally do business.
Members are only personally liable for debts to the extent of the money they put into the business.
All of the following are considered advantages of doing business as an LLC, except: The LLC insulates its members from personal liabilities for the debts of the business. Members of the LLC may lawfully avoid filing personal tax returns with the IRS. The LLC can function much like a general partnership, while avoiding many of the risks of a general partnership. The LLC can provide its members voting rights that are proportionate to the members' capital contributions.
Members of the LLC may lawfully avoid filing personal tax returns with the IRS.
The usual procedure for a party seeking to perfect a mechanic's lien to file or record a ____ in the office of the county in which deeds to real estate are recorded. Notice of lien Fixture warrant Writ of warrant Lis warrant
Notice of lien
Which of the following best describes the role of a general partner in a limited partnership? The general partner usually has an insignificant role in the overall business decisions of the limited partnership. The general partner defers to the business decisions of the limited partners of the limited partnership, unless those decisions seem economically unreasonable. The general partner may participate in the business decisions of the limited partnership, but he or she will never be held personally liable for the debts of the business. The general partner manages the partnership and remains responsible for partnership liabilities.
The general partner manages the partnership and remains responsible for partnership liabilities.
A surety's obligation is a generally promise to do what the principal agreed to do. True False
True
BOTH perforance bonds and fidelity bonds are sureties. True False
True
Because the LLC is a relatively new type of business entity, there are often fewer published court opinions addressing LLC issues. True False
True
Both contractors and subcontractors are entitled to a mechanic's lien against the owner for nonpayment of their accounts. True False
True
California and New York allow only professional services firms to do business as Limited Liability Partnerships. True False
True
Co-sureties share joint and several liability to the creditor True False
True
Contractors have a longer period in which to file mechanic's liens that subcontractors or suppliers have. True False
True
If a credit gets a judgment against the creditor, and then the surety pays the creditor, the surety gets to benefit from the judgement that was obtained by the creditor. True False
True
In a manager-managed LLC, only the manager-members have access to the LLCs books. True False
True
In a manager-membered LLC, an individual or small group has the authority to control and make decisions for the LLC. True False
True
In a member-managed LLC all members participate in management. True False
True
In the majority of states an LLC can be both formed and managed by only one member. True False
True
LLC's are taxed as partnerships unless the owners choose to be taxed as a corporation. True False
True
Limited Partnership must have at least one general partner. True False
True
Modification of the creditor-principal agreement generally discharges the surety. True False
True
One recognized advantage to a general partnership is that it allows partners to share in management and profits of the partnership. True False
True
Relative to corporate and partnership law there is not a comparble amount of case law involving LLCs. True False
True
State law determines whether or not a mortgage will have priority over a mechanic's lien. True False
True
Subrogation means the substitution of one person in place of another. True False
True
Surety agreements may also be created by operation of law. True False
True
The limited liability partnership is often an attractive option for professional associations such as law firms, accountants and medical doctors. True False
True
The manager of a manager-managed Limited Liability Company may be a non-member. True False
True
The two types of guaranty agreements are general and special. True False
True
To create a Limited Liability Corporation, articles of organization must be filed with the state's Secretary of State's office. True False
True
When dealing with an absolute guarantor, the creditor does not have to first attempt to collect from the debtor prior to proceeding against the guarantor. True False
True
Compared to other business entities, a general partnership requires filing complex documentation with the secretary of state's office before it is authorized to do business. True False
false
All of the following are considered advantages to a Limited Liability Partnership, except: A limited liability partner is always insulated from personal liability of he or she commits malpractice. A limited liability partner can avoid personal liability for partnership debts. The limited liability partnership can function much like a general partnership, without the same risks of personal liability as a general partnership. Partnership proceeds may "pass through" the partnership for income tax purposes.
A limited liability partner is always insulated from personal liability of he or she commits malpractice.
Which of the following parties could claim an artisan's lien? A common carrier of goods. A jeweler who repaired a watch The owner of a storage facility All of the above are eligible for an artisan's lien.
All of the above are eligible for an artisan's lien
Which of the following is considered a disadvantage of doing business as a general partnership? A general partnership is not a taxable entity under IRS rules. Income in a general partnership flows directly to the partners. All partners can participate in management of the partnership. All partners are/may be held liable for partnership debts.
All partners are/may be held liable for partnership debts.
Jason has filed suit against Luke claiming $50,000 in damages. While the claim is being litigated, Jason can ask the court for a writ to seize property belonging to Luke which could be used to satisfy a judgment. The seizure prevents Luke from selling or otherwise disposing of the property during the proceedings. The writ Jason will ask for is a writ of________________. Attachment Attainder Execution wrong Garnishment wrong
Attachment
Pearl sued Sam and was awarded a judgment against him for $50,000. Sam has a savings account with First Bank that can be seized in partial satisfaction of the judgment. The writ the court will use ordering First Bank to turn over to it the funds in Sam's account is a writ of____________. Attainder Attachment Garnishment Execution
Attachment
Under the "pass through" principle, a business entity Avoids double taxation Assigns assets of the business to a receiver. Delegates duties of the business to a subcontractor Conducts high risk activities through a subsidiary.
Avoids double taxation
A _________ is the voluntary relinquishment of the right to a mechanic's lien before a notice of lien is filed. Satisfaction and accord. Waiver. Collection proceeding. Confessed judgment.
Collection proceeding.
An extension of time of payment between a creditor and principal must be a valid agreement supported by ______ if it is to have an impact on the surety's liability. Consideration Collateral Personal property. Real property.
Consideration
A surety is liable to the creditor as soon as the principal ________. Enters into the contract. Makes an initial payment. Files for bankruptcy Defaults
Defaults
Paul sued Dan and won a $90,000 judgment against him. Paul has identified property belonging to Dan that would be used to satisfy the judgment. The order the court will give to the sheriff instructing him or her to seize and sell Dan's property is a writ of ________________. Attachment Garnishment Execution Expropriation
Execution
Which of the following is recognized as a disadvantage to doing business as an LLC? Existing court decisions addressing LLC issues and formation are relatively undeveloped, which may lead to legal uncertainty when making business decisions. Individual members of the LLC can never bind the LLC in a valid and enforceable contract. Compared to other business entities, the LLC is taxed more heavily by the IRS. An LLC requires the participation of several owners, which can sometimes complicate day-to-day business decisions.
Existing court decisions addressing LLC issues and formation are relatively undeveloped, which may lead to legal uncertainty when making business decisions.
Contracts of suretyship are legally indistinguishable from contracts of indemnity. True False
False
In a Limited Liability Company, the unanimous consent of the members is required to hire a new employee. True False
False
Modernly, surety and indemnification contracts are the same thing. True False
False
The majority of states have not yet enacted Limited Liability Partnership enabling statutes. True False
False
State law requires that state chartered banks post bonds to protect the banks from losses caused by embezzlement by bank employees. The bonds posted by banks are __________bonds. Fidelity Performance Bank Fiduciary
Fidelity
A "certificate of limited partnership" is a document that is Filed with the state Secretary of State by the limited partnership as part of its application process. Issued by the IRS to acknowledge a limited partnership's tax status. Issued by the limited partners jointly to the general partner. Issued by the general partner to the limited partners.
Filed with the state Secretary of State by the limited partnership as part of its application process.
Any third party who promises a creditor to be liable for a principal's payment is either a surety or _________. Obligee. Guarantor. Principal Debtor Obligor.
Guarantor.
Edgar Esquire has an insurance contract with Lawyers Insurance Company which provides that Lawyers Insurance will pay any malpractice judgment against Edgar up to $3 million. The insurance contract between Edgar and Lawyers Insurance Company is one of __________. Suretyship Special guarantee General guarantee Indemnity
Indemnity
In which of the following business organizations does an owner risk losing his or her limited liability by actively and publicly managing the business? Limited Partnership Limited Liability Partnership General corporation Limited liability corporation
Limited Partnership
An LLC where a single person or select group has the power to manage is a ____________________LLC. Manager-managed Member-managed Proprietary Subchapter S
Manager-managed
Which of the following statements about the operation of a member-managed LLC is false? Articles of organization must be filed with the state as part of the application process. The application must state that it is to be a member-managed LLC. Only the managing members have access to the books and records of the LLC Any member of the LLC may bind the LLC on a contract.
Only the managing members have access to the books and records of the LLC
All of the following could be accurate statements about a general partnership, except: Partnership liabilities in a general partnership are limited to the amount of capital contribution. Partners can share in management of the partnership. Partners can share partnership profits. The general partnership allows for quick, easy and immediate control.
Partnership liabilities in a general partnership are limited to the amount of capital contribution.
The right of first refusal refers to the right of LLC members to Dissent from a business decision by a non-member manager. Vote against admitting another member. Purchase the interest of another member in the LLC before it is offered to an outside buyer Purchase an asset of the LLC before it is offered for sale to the public.
Purchase the interest of another member in the LLC before it is offered to an outside buyer
Megan agreed to act as a surety on a personal loan First Bank made to Arthur. When Arthur defaulted on the loan, Megan paid off the loan obligation. Megan now has the right of ________against Arthur. Contribution Indemnification Reimbursement Subrogation
Reimbursement
Jo and Anna, who are mother and daughter, are co-owners of Joanna's Frocks. When the bank loaned money to the business, Jo and Anna agreed to be sureties on the loan. Under the loan agreement, Anna will be liable only if Jo defaults on her obligation as a surety. Anna is a __________on the loan. General guarantor Special guarantor Co-surety Sub-surety
Sub-surety
A ________ provides security for a creditor without involving an interest in the property, where the security for the creditor is provided by a third person's promise to be responsible for the debtor's obligation. Suretyship. Artisan's lien. Mechanic's lien. Foreclosure sale.
Suretyship
A document that an LLC must submit to the secretary of state's office prior to doing business is ______. The Operating Agreement. A Partnership Agreement. The Articles of Organization. A Security Interest Filing.
The Articles of Organization.
Which of the following would a represent a breach of fiduciary duty by a general to the limited partners in a limited partnership? The general partner takes action to personally profit from the business of the partnership. The general partner takes action to minimize the risks and debts that are incurred by the partnership. The general partner enters into contracts on behalf of the partnership without first consulting the limited partners. The general partner uses certain partnership assets to secure a loan for a business venture that is not undertaken in the name of the partnership.
The general partner uses certain partnership assets to secure a loan for a business venture that is not undertaken in the name of the partnership.
A member of an LLC risk personal liability for participating in all of the following activities, except: In the name of the LLC, the member secretly loans money to a close friend. The member knowingly files a false tax return with the IRS. The member volunteers to assume personal responsibility for a loan payments made by the LLC. The member consistently votes against decisions that are ultimately approved by the majority of other members of the LLC.
The member consistently votes against decisions that are ultimately approved by the majority of other members of the LLC.
When considering whether a partner has breached his or her fiduciary duties to the partnership, courts are likely to consider all of the following, except: Specific language of the Partnership Agreement. Applicable state partnership statutes. Prior court decisions. The partner's personal net worth.
The partner's personal net worth.
In a suretyship, security for the creditor is provided by Granting the creditor an interest in the debtor's real property A statutory lien on the debtor's personal property. The promise of a third party to perform if the debtor does not perform. A pledge by the debtor of personal property.
The promise of a third party to perform if the debtor does not perform.
All of the following are rights held by an individual member of an LLC, except: The right to request that the LLC be dissolved. Access to the LLC's books and records. The right to vote against an amendment to the LLC's operating agreement. The right to sell one's interest in the LLC without notifying or consulting the other members of the LLC.
The right to sell one's interest in the LLC without notifying or consulting the other members of the LLC.
All of the following are functions of an LLC's Operating Agreement, except: To set forth rules concerning voting rights for members of the LLC. To indemnify members of the LLC from liability for any unlawful acts. To make rules concerning the transfer of interests in the LLC. To address circumstances in which the LLC would dissolve.
To indemnify members of the LLC from liability for any unlawful acts.
A creditor can assign a general guarantor's promise to a new creditor for value. True False
True
A general guarantor's promise is not limited to a single transaction. True False
True
A limited partner has liability to the full extent of his or her capital contribution. True False
True
A limited partner risks personal liability when he or she actively participates in the management of partnership affairs. True False
True
A principal who is discharged in bankruptcy is released from his duty to reimburse the surety. True False
True
A sub-surety becomes liable to the creditor only when another surety fails to perform. True False
True
A surety who only guarantees collection is entitled to notice. True False
True
Limited partners may lose the full amount their capital contribution if the limited partnership incurs debts that exceed its assets. True False
True
Restatement of Security treats contracts of suretyship as interchangeable with guarantor contracts. True False
True
State courts have the power to order that real property be sold to satisfy a mechanic's lien. True False
True
If a judgment for dollar damages is not paid, the judgment creditor may apply for a ____ Writ of Execution Writ of Mandamus Writ of Santa Habeas Corpus
Writ of Execution
A(n) _______ is a legal proceeding accompanying an action in court by which a plaintiff may acquire a lien on a defendant's property as a security for the payment of any judgment that the plaintiff may recover. Attachment. Sheriff's sale. Meeting of creditors. Discharge in bankruptcy.
attachment
a surety has no obligation to the creditor unless the principal __________
fails to perform
A commonly cited disadvantage of an LLC is that its members often risk personal liability if the business of the LLC fails. True False
false
A disadvantage of the Limited Liability Company is that profits are taxed both as income to the corporation and as dividends to the members. true false
false
A lien for the value of materials and labor used in the construction or improvement of real property is an artisan's lien. True False
false
An LLC must have at least two members that participate in management in order to lawfully do business true false
false
If the principal does not default, the surety never becomes liable to the creditor. True False
false
Limited Liability Companies are one of the oldest forms of business organization
false
One of the disadvantages of a Limited Liability Partnership is double taxation.
false
When holders of mechanic's liens are equal in priority, and there are not sufficient funds to satisfy all their claims, they will share the funds that are available on a pro-rata basis. True False
false
A __________ is a party whose promise is not limited to a single transaction or to a single creditor.
general Guarantor
A _______ provides protection against losses that may result from the failure of a contracting party to perform the contract as agreed. Performance bond. Foreclosure sale. Finance agreement. Payment schedule.
performance bond
A limited partnership allows limited partners to be only liable for their capital contribution. true false
true
A sub-surety becomes liable to the creditor only when another surety fails to perform. True False
true
Absent an agreement otherwise, a Limited Liability Company's operating agreement can only be amended with the unanimous consent of the members.
true
If the formalities of creating a limited partnership are not met, a partnership will be treated by courts as a general partnership. true false
true
Voluntary surrender of personal property subject to an artisan's lien generally terminates the lien.
true
ABC Corporation has a $150,000 open line of credit with Local Bank. Alice, the president of ABC, promised Local Bank that she will be liable if ABC defaults on any or all of the draws it takes against its line of credit. Under this agreement, Alice is a __________________. Special guarantor xx General guarantor Co-principal Co-surety
wrong
In a manager-managed LLC ___________. No one member of the LLC has authority to make business decisions on behalf of the LLC. An individual or small group has the authority to control and make decisions for the LLC. All members of the LLC participate equally in business decisions. The authority of the members of the LLC to make decisions is directly proportionate to the amount their capital contribution.
An individual or small group has the authority to control and make decisions for the LLC.
A surety will remain liable when the creditor-principal agreement is modified if the surety consents to the modification Before the modification takes place At the time the modification takes place After the modification takes place Any of the above
Any of the above
Mel, who owns a car repair shop, replaced the clutch in Ellen's car. Until Ellen pays for the repairs, Mel has a ______lien on the car. Artisan's Mechanic's Judicial Guarantor's
Artisan's
A security interest in personal property in favor of one who has performed services on the personal property is an ________. Mechanic's lien. Artisan's lien. Color of title. Security Deposit.
Artisan's lien
A Limited Partnership must have ____________. At least one limited partner who participates in management decisions. An equal ratio of limited partners to general partners. At least one general partner. Equal capital contributions from both limited and general partners.
At least one general partner
Rod and Todd have joint and several liability as sureties on a loan made to Rod's business by First Bank. Under this agreement, Todd is a ____ . General Guarantor Co-surety Special Guarantor
Co-surety
In a _______, a creditor must have made reasonable but unsuccessful attempts to collect from the principal before the guarantor can be held liable. Absolute guaranty. Unconditional guaranty. Conditional guaranty. Satisfaction guaranty.
Conditional guaranty.
Persons who contract with the owner to furnish labor or material or construct a building are known as _________. Contractors. Subcontractors. Authorized agents. Mortgagees.
Contractors
Bob is a co-surety with Sue on a loan that was made to Sue's business. If the business defaults on the loan and Bob is required to pay the full amount, Bob has the right of ____________ against Sue. Reimbursement Indemnification Contribution Subrogation.
Contribution
A ________ is a party who limits his or her promise to a single transaction or to a single creditor. General guarantor. Special guarantor. Creditor. Obligee.
Special guarantor.
Individual members of an LLC may do all of the following, except: Bind the LLC in legally enforceable contracts. Voting on business personnel issues. Making capital contributions to the LLC. Using LLC funds to satisfy personal debts.
Using LLC funds to satisfy personal debts.
Absent an agreement otherwise, the members of an LLC have a statutory right to approve a merger dissolve the LLC inspect the books and records of the LLC all of the above are statutory rights
all of the above are statutory rights
