BA 3301 chapter 14 quiz

Question 2 Regarding an LLC operating agreement, which statement below best fits? a. If parties do not create an operating agreement, the state's LLC statute will function as the LLC's default operating rules. b. Operating agreements are a formality. Members can act in any lawful manner, regardless of an operating agreement c. A good idea is to download an operating agreement from the Internet. d. Until an LLC must creates a written operating agreement, it cannot begin operations.

a. If parties do not create an operating agreement, the state's LLC statute will function as the LLC's default operating rules.

Question 3 The source of law allowing for the creation of a limited liability company is ___________. a. a state's LLC statute. b. a federal business statute. c. a state's business common law. d. federal business common law.

a. a state's LLC statute.

Question 9 If an LLC wants to raise capital because it has not assets, a bank might ask members _________ in order to secure the loan. a. for a personal guarantee of repayment b. for the co-signature of members' spouses with assets (spouses are not LLC members) c. none of the answers are correct. d. for co-signatures from members' parents (if parents have assets)

a. for a personal guarantee of repayment

Question 8 Regarding taxation of LLCs, __________ . a. the LLC can elect pass-through status, meaning members report income on their personal tax returns. b. LLCs are exempt from taxation as are their members. That is why they are such a popular form of business. c. I still haven't taken a tax class. What's with these tax questions???? Give us a break, please. d. LLCs must be taxed at the corporate tax rate.

a. the LLC can elect pass-through status, meaning members report income on their personal tax returns.

Question 5 Will and Zeek are members of an LLC in which they orally agreed to split profits and assets upon dissolution as follows: Will gets 30% and Zeek gets 70% because Zeek is working more hours and contributed more start-up capital. They did not create a written operating agreement. Two years later, they dissolve the LLC. How will profits and assets be divided up? (Note: Will wants 50%). a. 30-70 as per original oral operating agreement (which Will is denying ever existed). b. 50-50 as per state LLC statute (which becomes the default operating agreement when members to not create a written agreement). c. It depends on the percentage of time each worked in the LLC. d. Each will get the share that represents the amount of capital contributions they made to the LLC.

b. 50-50 as per state LLC statute (which becomes the default operating agreement when members to not create a written agreement).

Question 4 A major advantage of the limited liability partnership is _________. a. a partner can protect his personal assets from liabilities arising from his own misconduct or negligence. b. a partner can protect her personal assets from misconduct or negligence liability of other partners c. What's with these tax questions....not again :( d. the LLP is taxed at the lowest level of corporate tax rate, never the highest since it is not a corporation.

b. a partner can protect her personal assets from misconduct or negligence liability of other partners

Question 1 The process of winding up the operations of an LLC is called __________. a. disqualification b. dissolution c. dissociation d. reverse filing of articles of formation

b. dissolution

Question 10 In a ____________, the LLC members identify a manager who is given the authority to operate the business. a. member-managed LLC b. Jointly operated LLC (members and manager share decisionmaking) c. manager-managed LLC d. hybrid managed LLC

c. manager-managed LLC

Question 7 To create a limited liability company, one must file _________________ with the secretary of state in the state of creation. a. bylaws b. members' operating agreement c. corporate operating agreement d. a certificate of organization

d. a certificate of organization

Question 6 A major advantage of a limited liability company form of business is __________. a. there is no cost to formation. Filing is online and free. b. an LLC does not need to capitalize the entity. It generally has more credit capability than a corporation. c. lawyers will file the paperwork for free, general, as it's simple to do. d. principals' personal assets are protected from business liabilities as they would be in a corporate form.

d. principals' personal assets are protected from business liabilities as they would be in a corporate form.