LSB Exam 3
LLCs were originally created by the Wyoming legislature in
1977
LLCs were originally created by the Wyoming legislature in,
1977
An enterprise may not be a Subchapter S corporation if it owns more than the stock of a subsidiary corporation
80 percent
An owner of a corporation is called,
A Shareholder
What is the process for collecting additional contributions from partners as necessary called?
A capital call
Which of the following statements is incorrect?
A corporation may not incur obligations separate from those of its principals
Which of the following is true regarding the taxation of a limited liability partnership (LLP)?
All income or losses of the LLP are reported on the partners' individual tax returns
Which of the following is true regarding the management and operation of a limited liability partnership (LLP)?
Although not required by statute, limited liability partnerships will frequently have a partnership agreement that sets out their management and operational structure
Which of the following is true regarding taxation of a limited liability company?
An attractive advantage of the LLC model is the various tax treatment alternatives available to LLC members
Which document sets in motion the incorporation process?
Articles of incorporation
A limited partnership requires,
At least one general and one limited partner
Stefan has opened a sole proprietorship bicycle shop. The business shows a net income of $100,000. Stefan took a salary of $40,000. The remaining money is left in the bank.
At tax time, Stefan pays taxes on $140,000
Boris, Carina, and Theo have decided to go into business as a limited partnership importing and selling exotic spices. Boris and Carina will manage the business, and Theo will have no role in the day-to-day operations. Boris and Carina have each invested $500,000, and Theo has contributed the building and land that the business will be operated from. Alina, a customer, contracts a rare disease from a contaminated spice sold by the company and sues. Alina is awarded a judgment for $5 million. After she exhausts the assets of the partnership, having the property and building sold, and seizing all other property, $3 million remains unpaid.
Boris and Carina each owe $3 million jointly and severally, so Alina may sue one or both of them; Theo has no additional liability
Suppose that the First National Bank of Missouri (First National) loans $20,000 to Alex Harris (Harris) to operate his sole proprietorship, doing business as Alex Harris Catering Services. The loan is for five (5) years at the current market interest rate of 6.75 percent, and First National has already disbursed the entire loan amount to Harris in one lump sum. What type of loan is this?
Commercial
Gwendolyn Melvin wishes to start a children's sports store called, "Just Let 'Em Play!" as a sole proprietor. What form must she file so that she can use another name than her own?
DBA Certificate
Frank wants to leave his partnership and wants to stop being a principal. What is this process called?
Dissociation
The process when an individual member of an LLC exercises the right to withdraw from the partnership is called________.
Dissociation
What occurs when an individual member of a limited liability company (LLC) decided to exercise the right to withdraw from the organization?
Dissociation
Owners of nonvoting stock who receive a share of the corporate profits have received what is called a
Dividend
Which of the following is a specific dissociation event according to the Revised Uniform Partnership Act (RUPA)?
Expulsion by the unanimous vote of the other partners
A DBA name is sometimes known as a ________ name
Fictitious
The duty of a partner to act in the best interest of the partnership is called ______ duty.
Fiduciary
The duty of partnership to act in the best interest of the partnership is called ________ duty.
Fiduciary
Limited partnerships are required to file a(n) ________ return with the IRD each year.
Information
Chaplan Corporations is a privately held corporations that wishes to offer ownership interests to the general public and commercial investors in order to generate more capital. This process is called
Initial public offerings
Which statement below is correct about a sole proprietorship?
It has low start-up and minimal filing
Which statement below is correct about a sole proprietorship?
It has low start-up costs and minimal filing
Josh is a sole proprietor of an ice cream shop. Regina, a customer, slips and fall on some melted mint chocolate chip ice cream on the floor and breaks her leg. Regina files suit and wins a judgment of $50,000. Josh does not have any insurance and the total value of the assets of the ice cream shop is $10,000. Which statement below is correct?
Josh will have to use his own personal assets to pay the reminder of the judgment
Which of the following is true regarding the limited liability company (LLC)?
LLC members are insulated from personal liability for any business debt to liability (contract or tort) if the venture fails
Which of the following is true regarding capitalization of the limited liability company?
LLCs are capitalized primarily through debt via private lenders or commercial lenders or through the sale of equity ownership in the LLC itself
Cyndy is a sole proprietor of a day care. She wishes to build a new playground and also purchase new toys. She plans on doing this in stages and therefore wants a loan where she can draw against a predetermined amount as she needs it rather than getting a lump sum loan. Which type of loan would you recommend for Cyndy?
Line of credit
Franco and Jesse are operating as a general partnership. A question has arisen that is not covered under their partnership agreement nor addressed by the Revised Uniform Partnership Act. What will the courts do to resolve the situation?
Look to common law
The expiration date of a corporate bond is also called its________.
Maturity date
Bob is an owner in an LLC which makes him a _________.
Member
Which group of a corporation is responsible for running the day to day matters of the corporation?
Officers
Who manages the day-t0-day operations of the corporation?
Officers
Which of the following is not a characteristic of an LLC?
Only its managing members owe a fiduciary duty to other members.
LLCs are frequently governed by an agreement of the parties called an LLC agreement or
Operating agreement
Which of the following is true regarding funding a sole proprietorship?
Private loans come from family members and friends and are paid back according to their individual agreement
Matt and Mindy wish to incorporate their business but want to limit who can buy ownership interests in their business. Which type of corporation would you suggest?
Privately held corporation
After the ULLCA was created, some states have started to adopt an act that modifies it called
Revised Uniform Limited Liability Company Act
After the ULLCA was created, some states have started to adopt an act that modifies it called,
Revised Uniform Limited Liability Company Act
What occurs when an officer, director, or controlling shareholder has some personal financial stake in a transaction that the corporation is engaged in and the officer, director, or shareholder helps to influence the advancement of the transaction?
Self-dealing
All of the following are methods that a sole proprietorship can raise money except,
Sell ownership in the business
Raul wants a simple method to start-up a small marketing company. The marketing firm has relatively low revenue and expenses. Which type of business entity would you suggest?
Sole Proprietorship
Which federal regulatory authority oversees the regulation of franchisors?
The Federal Trade Commission (FTC)
Which of the following is a main advantage of pass-through taxation?
The ability of investors to assume the tax deductions and losses that are typically generated by an emerging company or a company with significant up-front debt
Which of the following is a main advantage of pass-through taxation?
The ability of the business to distribute earnings to its owners without incurring double-level taxation
Generally, shareholders, directors, and officers of a corporation are insulated fro personal liability in case the corporation runs up large debts to suffers some liability. What is the term for this liability protection?
The corporate veil
Generally, shareholders, directors, and officers of a corporation are insulated from personal liability in case the corporation runs up large debts or suffers some liability. What is the term for this liability protection?
The corporate veil
In most cases, what controls the amount and methods of capatilizing the limited liability company (LLC)?
The operating agreement
In most cases, what controls the amount and methods of capitalizing the limited liability company (LLC)?
The operating agreement
Which of the following is true about a sole proprietorship?
The owner reports income and expenses on the owner's own tac return
Jeff files the articles of incorporation to start BluSky Inc. What will be the next step?
The principals will hold an organizational meeting to resolve any pending issues
Which of the following is true regarding termination of a sole proprietorship?
The proprietor's ownership interests in a sole proprietorship cannot pass to her haters through a gift to an estate
From the principal's perspective, what is the chief disadvantage to the sole proprietorship as a business entity?
The unlimited personal liability of the principal for unpaid debts and liabilities of the business
Suppose that Dexter and Benjamin form OBX Leisure Pursuits, Inc. by filing articles of incorporation. They decide to split the profits equally and, wishing to save the expense of hiring an attorney, do not keep up with the corporate formalities after the articles are filed. Which of the following is true regarding the potential liability of Dexter and Benjamin if a lawsuit is filed against OBX Leisure Pursuits, Inc.?
They have potentially exposed their personal assets if OBX Leisure Pursuits, Inc. does not have sufficient assets to satisfy a judgment against the company
How are limited liability partnerships (LLPs) capitalized?
Through private lenders, through commercial lenders, or by a sale of partnership equity for ownership in the limited liability partnership (LLP) itself
How are limited liability partnerships (LLPs) capitalized?
Through private lenders, through commercial lenders, or by a sale of partnership equity for ownership in the milted liability partnership (LLP) itself
Toby was elected to the board of trustees of the Chi-Town Corporation (CTC) four years ago. He loves to brag about his position as a board member, but he cares more about the prestige than doing a good job. As a member of the board at CTC, Toby serves on several committees. However, although the board and all of the committees meet on a regular basis, Toby has never attended any of these meetings and doesn't participate in any board decisions. If the insiders at CTC enter into a series of bad business deals that cause CTC to suffer a financial loss, what is Toby's potential liability?
Toby will be liable because his inattention will likely be considered negligence and a breach of his fiduciary duty of care
Reid Sterling owns a sole proprietorship called Dunkle Distributing. Dunkle Distributing is a,
Trade Name
Under the default rules of partnership law, if a partner within the ordinary course of business incurs a payment or liability made on behalf of the partnership, the partnership must reimburse that partner for the expense. True or False?
True
Which statement is accurate about Delaware as it relates to taxation treatment of out of state corporation that incorporate in Delaware?
Unless they sell products and services in Delaware, they may not benefit at all from Delaware tax treatment
Which of the following is true regarding venture capital and venture capital firms?
Venture capital forms and their principals usually insist on substantial control over the corporation via its board of directors and even its officers.
Dissolution does not actually end the partnership, but instead triggers the process of ___________.
Winding up
Redrock GP has decided to go out of business. Selling the partnership assets and making payments to creditors will occur during the __________ phase of the closing of a partnership.
Winding-Up
When a partner no longer wishes to be a principal in the partnership, she may choose to leave the partnership. What term does the Revised Uniform Limited Partnership Act (RULPA) use to describe this act of separation?
Withdrawal
When a partner no longer wishes to be a principal in the partnership, she may choose to leave the partnership. What term does the Revised Uniform Limited Partnership Act (RULPA) use to describe this act of separation?
Withdrawal.
LLCs were originally created by the
Wyoming legislature
The parties in a franchise are typically bound to each other via _______
a franchise agreement
With regard to taxation of partnerships,
a partnership must file an information return
An owner of a corporation is called,
a shareholder
Limited liability partnerships )LLPs) are formed when a general partner files __________ with the appropriate public official
a statement of qualification
Limited liability partnerships )LLPs) are formed when a general partnership files _______ with the appropriate public official.
a statement of qualification
Formation of an LLC requires the filing of,
articles of organization
A limited partnership requires,
at least one general and one limited partner
The _______ rule protects _______ from liability for decision that may have been unwise but did not breach the duty of care
business judgment; officers and directors
A ______ agreement allows the reaming partners to purchase the partnership interest of a ________ partner
buy-sell; withdrawing
Upon a dissociation from a limited liability company (LLC), the remaining members may _________.
choose to either continue the LLC or intimate dissolution of it
Javier no longer wishes to be a principal in his general partnership, so he chooses to leave it. Alexia no longer wishes to be a principal in her limited partnership, so she chooses to leave it. Under the Revised Uniform Partnership Act (RUPA), Javier's act of separation is called __________, while under the Revised Uniform Limited Partnership Act (RULPA), Alexia's act of separation is called __________.
dissociation; withdrawal
Limited liability company (LLC) laws define ________ of an LLC as a ________ process triggered by an event that is specified in the __________ or by the decision of the majority of the members to dissolve the company.
dissolution; liquidation; operating agreement
In terms of factors to consider in choosing a business entity, issues such as how easy the business is to start and maintain, whether there must be more than one principal, what annual filings or fees are required, and what formalities need to be followed are related to the __________ factor.
formation
To form a limited partnership, the _______ partner files _______ with the ________ government authority
general; a certificate of limited partnership; state
A _______ partnership is an entity that exists by virtue of a ________ statute that recognizes one or more partners as managing the business while other partners participate only in terms of contribution capital or property
limited; state
In a _________ limited liability company (LLC), the management structure of the entity is similar to that of a general partnership
member-managed
The person who is entitled to the profits of a business based on the percentage of ownerships is,
principal
An LLC offers principals the same liability coverage as that of,
principals in corporation with pass-through taxation
An LLC offers principals the same liability coverage as that of
principals in corporations with pass-through taxation
A privately help corporation may find that its expansion plans require even more capital than can be raised using private investors. In that case, the corporation may convert itself from ________ to _________ by engaging in an ____________.
privately held; publicly held; IPO
In a general partnership,
profits and losses may be unequally split based on the partnership agreement
Articles of organization are also called __________.
the certificate of organization
Several people have decided to go into business as an LLC. To cover all contingencies, they want to specify what constitutes an act of dissociation and outline the procedures upon dissolution. This information would be included in,
the operating agreement
Regarding limited partners,
they may not withdraw before the time that the partners have agreed the partnership will terminate
John Anderson, an expert in lawn care, operates a sole proprietorship as "Anderson's Lawn Maintenance and Landscaping." This is known as a __________.
trade name
