Midterm Review

"Northern California Medical Associates" is an appropriate name for an LLP.

False

A Limited Liability Company must have two or more persons

False

A business entity providing tax-through tax status to its managing shareholders is a limited liability company.

False

A corporation derives its existence from the federal government.

False

A corporation operating in the state of its incorporation is called a foreign corporation, whereas a corporation formed in one state and doing business in another is referred to in the second state as a domestic corporation.

False

A partner in a general partnership wishes to transfer all of his partnership interest to another. This transfer automatically allows the newcomer to participate in partnership decisions and management

False

A partnership that has no specific term is called a willful partnership

False

A principal whose existence but not specific identity is known to others is called a disclosed principal

False

ABC Inc. owes money to Nathan Powers. Nathan should name both ABC and its shareholders as defendants in any lawsuit

False

All of the LLP's income, whether distributed or not, will be passed through to the individual LLP members who will pay tax on this at their appropriate individual rates. The LLP itself also pays tax

False

All three of a corporation's shareholders declare bankruptcy. The corporation will automatically dissolve.

False

An LLC is created by filing articles of incorporation with the secretary of state.

False

An LLP is fully bulletproof in only 49 jurisdictions, whereas an LLC is fully bulletproof.

False

An agency must arise by written agreement

False

An assignment of an LLC member's interest in the LLC automatically carries with it the right to participate in management of the LLC.

False

Bylaws are usually difficult and costly to amend.

False

Corporations are typically managed by their owners (the shareholders) as are other entities such as partnerships

False

General partnerships pay federal taxes

False

If liability is imposed on one party for the acts of another (even though the first party is not at fault), the first party is said to be precariously liable for the acts of the other.

False

In a limited liability partnership, partners are not liable for the acts of negligence of their co-partners or for their own acts of negligence

False

In most jurisdictions, "Walker Real Estate" would be a valid corporate name.

False

LLCs require at least two members.

False

Limited partners in limited partnerships do not have limited liability, regardless of whether they manage or control the business. In an LLC, however, a member may not engage in management and still retain limited liability.

False

Limited partnerships are increasingly popular forms of business in the United States

False

Managers of an LLC must be members of the LLC.

False

Once bylaws are amended, they are then filed with the appropriate state agency

False

Pass through taxation means that not all of the income earned in the business is passed through to the individual owners, who then pay tax on the income at their appropriate tax rates. The business entity itself does not pay tax.

False

Preincorporation share subscriptions may be revoked at any time after they are given or signed

False

Sarah is inexperienced in partnership affairs so she may appoint her sister to make partnership decisions in her place.

False

Sole proprietorships can be formed only by filing the pertinent documents with the secretary of state of the state

False

The articles of incorporation of Harris Corp. conflict with the state statutes in the state in which Harris Corp. was incorporated. The articles of incorporation will control.

False

The formation of a limited partnership is nearly identical to the formation of a general partnership

False

The most popular form of doing business in the United States is the business corporation

False

The owners of a corporation are called officers

False

There is a special tax treatment for sole proprietors, and they are not subject to double taxation as are corporations

False

When a limited partnership files its certificate of limited partnership with the secretary of state, it also files its limited partnership agreement with the secretary of state

False

When a sole proprietor dies (or transfers the business to another), no new sole proprietorship is formed

False

A close corporation is allowed greater informality and flexibility in operating than a regular "C" corporation.

True

A corporation created by another corporation is called a subsidiary corporation.

True

A corporation may operate under a fictitious name.

True

A general partnership may be formed by oral or written agreements.

True

A limited liability partnership agreement should be in writing

True

A limited liability partnership formed in one state can do business in another, if it follows the appropriate statutory formalities

True

A limited liability partnership is a form of general partnership

True

A limited partnership formed in one state may do business in other states if it complies with their requirements

True

A partner in a general partnership is owed $10,000 in partnership profits. This share of profits may be seized by a creditor of the partner

True

A sole proprietor may be able to procure insurance to cover certain liabilities that may arise in the business or may be able to negotiate directly with customers, clients, and others so that they agree not to hold him or her personally liable for business obligations.

True

A sole proprietorship pays no federal income tax

True

Agents owe duties of notification to their principals

True

All states permit a one-person LLC; LLPs, however, because they are a form of partnership, must always have at least two partners

True

An LLC is taxed in the same manner as a general partnership.

True

An LLLC is an entity which is for-profit with explicit social purposes, such as promoting affordable public housing, alternative energy sources, or some other charitable goal.

True

An LLP formed in one state may do business in another state as an LLP. RUPA § 1101(a) expressly provides that the laws of the state where the LLP was formed will govern the relations among the partners and the liability of the partners for obligations of a partnership that qualifies to do business in another state

True

B corporations are brand new types of corporations that combine profit making with social good.

True

Business corporations are considered the most difficult of all business enterprises to organize and maintain

True

Corporations are governed by their own articles of incorporation and by their bylaws.

True

Corporations can act only through their authorized agents, namely their directors and officers.

True

Corporations have limited liability. Using a corporation as the general partner produces a limited partnership in which all partners (both general and limited) have limited liability for business obligations

True

Corporations have the right to free speech.

True

Express Authority may be oral or in writing and refers to acts specifically directed by the principal

True

General Partner Smith withdraws from a limited partnership and is replaced by General Partner Jones. The limited partnership must amend its certificate of limited partnership to reflect this change

True

General partnerships have great flexibility in deciding how they wish to operate. If they fail to reach agreement on certain issues, however, the UPA and RUPA supply certain "missing" term

True

Generally, if a business name included the last name of the owner and does not imply that others are involved, a fictitious business name statement need not be filed.

True

Generally, unless a promoter is expressly released from obligations entered into by the promoter, he or she will remain liable for the obligations

True

Generally, unless the document that creates the corporation provides for them, preemptive rights do not exist.

True

If a general partnership is dissolving, creditors will be paid before any partners are paid

True

If a principal approves or accepts an agent's unauthorized act, it is said that the principal has ratified the act.

True

If an LLC is dissolved for failure to pay taxes or file its annual reports, this is usually referred to as an administrative dissolution.

True

If there is any doubt as to whether the statement should be filed, the sole proprietor should err on the side of caution and file the statement

True

Implied authority arises not because acts have been specifically directed by the principal but because certain acts are customarily performed by agents in similar situations

True

In most states, an LLC can reserve a name prior to its formation

True

In some instances the "veil" of limited liability can be pierced in an LLC so that members have liability for the LLC's obligations.

True

Limited partners cannot manage or control the entity and limited partners have limited liability

True

Limited partners may easily transfer their interests to others

True

Most states require corporations formed in the state and those that are authorized to do business in the state to file an annual report.

True

Partners in a general partnership may devise any formula or arrangement they like for dividing profits and losses

True

Principals owe the duties of compensation, reimbursement/indemnification, and cooperation to their agents

True

Shares of stock in a corporation are freely transferable

True

Sole proprietors have unlimited personal liability for business debts; thus, liability extends beyond business assets to the sole proprietor's personal assets

True

Sole proprietors retain all profits earned in the business

True

The LLC is a hybrid because it combines features of partnerships with features of corporations

True

The document that creates an LLC must indicate how the LLC is to be managed.

True

The document that governs the operation of an LLC is called its operating agreement.

True

The greatest advantage to adopting the corporate form of business is the protection from personal liability for the owner/shareholders, directors, and officers. The corporation itself is liable for its debts and obligations.

True

The greatest disadvantage to operating as a corporation is double taxation. The corporation is taxed on the income it makes, and then the shareholders are taxed when this income is distributed to them in the form of cash dividends. Thus, the same money has been taxed twice

True

The most significant difference between the UPA and the RUPA is that under the UPA, almost every departure of a partner causes a dissolution of the partnership whereas under the RUPA, most departures merely trigger a buyout of the departing partner's interest rather than causing a dissolution of the partnership entity itself

True

The most significant disadvantage of a sole proprietorship is unlimited personal liability, meaning that liability extends beyond what is invested in the business to the owner's personal assets

True

The operation of a limited liability partnership is nearly identical to the operation of a general partnership

True

The owners of sole proprietorships, general partnerships, general partners in limited partnerships, and professionals in professional corporations have personal liability. Other business structures (LLP,LLC, and C corporations and professional corporations) protect their owners from liability.

True

The primary difference between a "C" corporation is that a "C" corporation is subject to double taxation.

True

The status and liability of general partners in limited partnerships is the same as that of general partners in general partnerships

True

The tax considerations are the same for limited partnerships as for general partnerships.

True

Today, neither a corporation nor a third party can challenge a corporate act on the basis that it is beyond the powers of the corporation.

True

Under LLP law, only the LLP itself and the partner committing the wrongful act have liability for a wrongful act, so an injured party is limited to the partnership's assets and those of the malfeasing partner

True

A business may incorporate in any U.S. jurisdiction

True

Limited liability partnerships are recognized in all U.S. jurisdictions.

True