BLaw 2 - Ch. 39 Quiz
Which of the following is an INCORRECT statement regarding agency authority to bind an LLC to contracts?
In a manager-managed LLC, non-manager members can bind the LLC to contracts. Correct: - An LLC is bound to contracts that members have properly entered into on its behalf in the ordinary course of business. - In a manager-managed LLC, the managers have authority to bind the LLC to contracts. - In a member-managed LLC, all members have agency authority to bind the LLC to contracts. - An LLC is bound to contracts that managers have properly entered into on its behalf in the ordinary course of business.
Which of the following is NOT true about a limited liability partnership (LLP)?
A certificate of limited liability partnership is a private document. True: - The LLP law of the state governs the operation of the LLP; however, an LLP may do business in other states. - The LLP is a domestic LLP in the state in which it is organized. - Many state laws require LLPs to carry a minimum of $1 million of liability insurance that covers negligence, wrongful acts, and misconduct by partners or employees of the LLP. - An LLP is created formally by filing articles of limited liability partnership with the secretary of state of the state in which the LLP is organized.
An LLC is formed by members John, Alicia, and Margaret. They designated the LLC as manager-managed and appoint Alicia and nonmember Robert as its managers. Who has the authority to bind the LLC to contracts?
Alicia and Robert, because they are the managers of the LLC
A _____ interest is a member's ownership interest in an LLC that entitles the member to receive distributions of money and property from the LLC.
distributional
Members of an LLC have _____ liability for the debts, obligations, and liabilities of an LLC.
limited
The owners of LLCs are usually called _____.
members
Managers of LLCs are _____ liable for the debts, obligations, and liabilities of the LLC they manage.
not personally
The fiduciary duty of loyalty includes the following duties EXCEPT?
not to engage in a known violation of the law Includes: - not to compete with the LLC secretly - not to make secret profits - not to deal with the LLC secretly - not to represent any interests adverse to those of the LLC
A(n) _____ is an agreement entered into among members that governs the affairs and business of the LLC and the relations among members, managers, and the LLC.
operating agreement
Which of the following is an INCORRECT statement regarding capital contributions to an LLC?
A member's obligation to contribute capital is excused by the member's death. Correct: - A member's capital contribution to an LLC may be in the form of an agreement to contribute cash. - A member's capital contribution to an LLC may be in the form of a promissory note. - A member's capital contribution to an LLC may be in the form of an agreement to contribute property. - A member's obligation to contribute capital is not excused by the member's disability.
An LLC can be either a(n) _____-managed LLC or a(n) _____-managed LLC.
member; manager
An LLC is a(n) _____ LLC unless it is designated as a(n) _____ LLC.
at-will; term
The _____ is a model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs.
ULLCA
Which of the following is an INCORRECT statement regarding members' and managers' duty of care to an LLC?
A manager of a manager-managed LLC does not owe a fiduciary duty of loyalty to the LLC, since he or she is not a member. Correct: - If a covered member or manager commits an ordinarily negligent act that is not grossly negligent, he or she is not liable to the LLC. - The fiduciary duty of care a member of a member-managed LLC and a manager of a manager-managed LLC owe to the LLC includes the duty not to engage in grossly negligent conduct that injures the LLC. - A member of a member-managed LLC owes a fiduciary duty of loyalty to the LLC. - The fiduciary duty of care a member of a member-managed LLC and a manager of a manager-managed LLC owe to the LLC is a limited duty of care because it does not include ordinary negligence.
Which of the following is an INCORRECT statement regarding members' and managers' duty of loyalty to an LLC?
A manager of a manager-managed LLC does not owe a fiduciary duty of loyalty to the LLC, since he or she is not a member. Correct: - A member of a member-managed LLC owes a duty of loyalty to the LLC. - The duty of loyalty includes the duty not to represent any interests adverse to those of the LLC. - The duty of loyalty includes the duty not to usurp the LLC's opportunities. - The duty of loyalty includes the duty not to make secret profits.
Which of the following is an INCORRECT statement regarding manager-managed LLCs?
All actions concerning the LLC can be delegated to managers. Correct: - In a manager-managed LLC, a manager must be appointed by a vote of a majority of the members. - In a manager-managed LLC, the members who are not managers have no rights to manage the LLC unless otherwise provided in the operating agreement. - In a manager-managed LLC, the members and nonmembers who are designated managers control the management of the LLC. - In a manager-managed LLC, each manager has equal rights in the management and conduct of the company's business.
Which of the following is NOT true regarding the management of an LLC?
All actions in a manager-managed LLC must be delegated to the managers. True: - A manager may be a member or a nonmember. - Each member in a member-managed LLC have equal management rights regardless of the member's capital contributions. - The members in a manager-managed LLC no longer have the right to manage the LLC. - An LLC is member-managed unless designated otherwise.
Which of the following is an INCORRECT statement regarding the management of an LLC?
An LLC must be managed by designated management, not by its members. Correct: - Whether an LLC is a member-managed or manager-managed LLC has important consequences on the right to bind the LLC to contracts and on determining the fiduciary duties owed by members of the LLC. - A manger of an LLC may be a non-member of the LLC. - A manager of an LLC may be a member of the LLC. - An LLC is a member-managed LLC unless it is designated as a manager-managed LLC in its articles of organization.
Which of the following is an INCORRECT statement regarding capital contributions to an LLC?
A member's capital contribution to an LLC may not be in the form of services. Correct: - A member's capital contribution to an LLC may be in the form of real property. - A member's capital contribution to an LLC may be in the form of personal property. - A member's capital contribution to an LLC may be in the form of tangible property. - A member's capital contribution to an LLC may be in the form of money.
Which of the following is an INCORRECT statement regarding a distributional interest in an LLC?
A member's distributional interest in an LLC must be transferred in whole. Correct: - The transfer of an interest in an LLC entitles the transferee to receive only distributions from the LLC to which the transferor would have been entitled. - A transferee of a distributional interest becomes a member of the LLC if it is so provided in the operating agreement or if all other members of the LLC consent. - Unless otherwise provided in the operating agreement, a transfer of an interest in an LLC does not entitle the transferee to become a member of the LLC. - A member's distributional interest in an LLC is personal property.
A(n) _____ is an unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations.
LLC
Which of the following is an INCORRECT statement regarding limited liability companies (LLCs)?
LLCs are creatures of federal statue. Correct: - The owners of LLCs are usually called members. - An LLC can only be created pursuant to the laws of the state in which the LLC is being organized. - Limited liability company codes regulate the formation, operation and dissolution of LLCs. - An LLC is a separate legal entity, distinct from its members.
Which of the following is NOT true about a member's dissociation from a limited liability company (LLC)?
Under no circumstances can a member withdraw from a term LLC. True: - The disassociation of a member from a term LLC before the expiration of the specified term is wrongful. - Unless an LLC's operating agreement provides otherwise, a member has the power to withdraw from the LLC, whether it is an at-will LLC or a term LLC. - The disassociation of a member from an at-will LLC is not wrongful unless the power to withdraw is eliminated in the operating agreement. - A member who wrongfully disassociates from an LLC is liable to the LLC and to the other members for any damages caused by his or her wrongful disassociation.
Which of the following is an INCORRECT statement regarding the taxation of LLCs?
Under the Internal Revenue Code, for federal income tax purposes, an LLC is taxed as a corporation unless it elects to be taxed as a partnership. Correct: - Most LLCs accept the default status of being taxed as a partnership instead of electing to be taxed as a corporation. - The process of flow-through taxation applies to LLCs. - An LLC's income or losses flow through to the members' individual income tax returns. - An LLC is not taxed at the entity level.
As a general rule, members of an LLC are not personally liable to third persons for the debts, obligations, and liabilities of an LLC beyond their _____.
capital contributions
