chapter 38 legal law final exam

A joint stock company has many features of a corporation. Which of the following is NOT one of the ways in which a joint stock company is like a corporation?

Its shareholders have personal liability.

Which of the following is a true hybrid of a partnership and a corporation

Joint stock company

If a member dies or otherwise dissociates from an LLC, the LLC ______________.

May continue if the remaining members agree.

In what order are proceeds from the sale of an LLC's assets distributed

Pay off debts to creditors, return members' capital contributions, distribute remainder to members in equal shares.

Which of the following is NOT typically a part of the contents of an LLC's articles of organization filed with the central state agency?

The hours of operation of the business.

A major difference between a joint venture and a partnership is that

a joint venture is a one-time association, whereas a partnership is ongoing.

Tuller wants to start a commercial trucking business and also wants to form his own limited liability company (LLC). Tuller, as the only member of the LLC, will make all relevant decisions, contribute all of the investment, and be responsible for all of the risks and rewards. Tuller's proposed LLC will be accepted by:

a majority of states.

A limited liability company (LLC) combines the tax characteristics of

a partnership with the liability of a corporation.

Marvin and Maria start selling handmade jewelry to distributors nationwide, and intend to form an LLC. Marvin and Maria enter into four contracts with distributors while the LLC is in the process of being formed, but before the LLC is formally in existence. Once Marvin and Maria form the LLC:

and it adopts the contracts, it can then enforce the contract terms.

Tyler and Stanton are members of an LLC. They have no operating agreement. Tyler and Stanton have a dispute. They look to the LLC statute for an answer, but the statute does not cover this situation. In this case, courts often:

apply state partnership law.

Jason, Julian, and Rebecca are members of a longstanding and successful LLC. The three members want to dissolve their LLC and distribute their assets, but they know the LLC has debts as well. Once all the LLC's assets have been sold, the proceeds:

are distributed equally to pay off creditors first and member capital contributions next. Any remaining amounts are then distributed to members in equal shares or according to the operating agreement.

The Big R is a cooperative that has several outlets in the Simi Valley area. Its stores sell farm and ranch supplies. It was formed to obtain quantity discounts and pass them along to its members. Big R is a type of

consumer-purchasing cooperative

If a group of people form a nonprofit membership organization to buy materials for their activities at a discount, they have probably formed a

cooperative

A group of fifty homeschooling parents in New Jersey get together and form a nonprofit membership organization for the purpose of buying teaching materials and supplies at a discount and selling the materials and supplies to members. The parents have probably formed a:

cooperative.

A cooperative must be incorporated in order to be recognized.

false

A joint venture is generally treated like a corporation for tax purposes

false

If a member wrongfully dissociated from the LLC, he or she may still participate in the winding up process

false

LLCs are created by state statute and are uniform across the states.

false

The members of an LLC have little flexibility in operating or managing a business.

false

Upon dissolution of an LLC, all assets must be sold immediately.

false

When a member dissociates from an LLC, he or she retains the right to participate as an agent for the LLC

false

One of the benefits of LLCs, and one that helps promote investment, is the fact that

foreign investors are allowed to become LLC members.

When a group of members join to form an LLC, the name of the organization must:

include the words, "limited liability company," or the letters, "LLC".

A seller-marketing cooperative

is formed to control the market and thereby enable members to sell their goods at higher prices.

Shari gets together with a group of her friends to pool their funds to buy a house, fix it up, and rent it out. This is a joint venture arrangement but also could be known as a

limited liability company.

Charlotte and Regina are opening a new business venture to sell gourmet cupcakes. One of the important characteristics in starting a limited liability company is:

limited liability for members.

Anson is a citizen of Connecticut. He suffers severe injuries in a car accident. He hires a Michigan attorney to bring a multimillion-dollar claim against the car manufacturer. The attorney belongs to an LLC whose members are from several states, including Connecticut. After losing the product liability claim, Anson brings a malpractice lawsuit against the attorney. He

may file in a state court in Connecticut or Michigan.

What are the options that exist for management of an LLC? Choose two:

member-managed and manager-managed.

Abby and Zeke begin a joint venture together selling fruitcakes door to door. Each invests $500. The joint venture generates large debts, and there is not sufficient income from the joint venture to pay them. Abby and Zeke as joint venturers are

personally liable

Creative Concepts Co. and Retail Investment, Inc., form a joint venture to purchase and sell high-end real estate to foreign buyers. Creative Concepts contributes $400,000 in capital and Retail Investment contributes $600,000 in capital. The first year resulted in $2,000,000 in profits. Unless otherwise agreed, joint venturers:

share profits and losses equally.

Matt and Chad form an LLC, and Matt later decides to withdraw as a member. They do not have a provision in their operating agreement regarding withdrawal of a member, but they do live in a state that has adopted the ULLCA, which means that

the LLC must purchase Matt's interest at fair value within 120 days.

In the LLC form of management:

the managers may be members, both members and nonmembers, or only nonmembers.

Xavier consults with an attorney and some business acquaintances from the Chamber of Commerce about the management of his LLC. He is told that management may take one of two forms, a member-managed LLC or a manager-managed LLC. In the second form:

the managers may be members, nonmembers, or a combination of both.

Mary, Thomas and Franklin form an LLC for the purpose of running a restaurant. Each invests $10,000 into the LLC. Two weeks after the LLC is formed, Joanne patronizes the restaurant and suffers from severe food poisoning. If Joanne sues the LLC:

the members could be liable for $10,000 each, the amount of their investment.

Product Management, LLC, has forty members. Two of the members died the previous year. Under the Uniform Limited Liability Company Act (ULLCA), on the death of the two members:

the other members may continue to carry on the LLC's business, unless the operating agreement provides otherwise.

Generally, an incorporated cooperative distributes dividends, or profits, to its owners on the basis of

the owners' transactions with the cooperative.

The seven members of Fast Commerce, LLC, want to start their company as quickly as possible. The members, in their haste, do not bother to draft an operating agreement. If a dispute arises between two of the members:

the state LLC statute will apply to the dispute.

Mack is an oil executive. He wants to start a new company with different partners to explore some drilling opportunities. His attorney advises him about the various business forms. When discussing the LLC form, his attorney mentions that one of the biggest disadvantages of the LLC form is that:

there is no uniform law governing LLCs in the United States.

One of the biggest disadvantages of organizing a company as an LLC is that

there is no uniform law governing LLCs in the United States.

A syndicate may be organized as a corporation or as a general or limited partnership.

true

Because risk is associated with the potential for higher profits, businesspersons are motivated to choose organizational forms that limit their liability while allowing them to take risks that may lead to greater profits.

true

For the most part, special business forms are hybrid organizations, that is, they combine features of other organizational forms, such as partnerships and corporations.

true

LLCs are legal entitles apart from their owners and as such can sue or be sued, enter into contracts, and hold title to property.

true

LLCs share many characteristics with corporations, such as they must be formed and operated in compliance with state law.

true

The events that may cause a member to be dissociated from the LLC include voluntary withdrawal, expulsion by other members, court order, incompetence, bankruptcy, and death.

true

Under the Uniform Limited Liability Company Act (ULLCA), managers in a manager-managed LLC owe fiduciary duties, such as the duty of loyalty and the duty of care, to the LLC and its members, just as corporate directors and officers owe fiduciary duties to the corporation and its shareholders.

true

When a member dissociates from an LLC, he or she loses the right to participate in management.

true