Purpose of the Corporation: Milton Friedman and Shareholder Ethics_ Chapter 4 (LLC)

Assume the football team is set up as a limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. The articles of organization specify that it is a member-managed firm. Which of the following statements is true in regards to the management of the firm, such as the decision of whether to fire the quarterback? a. All of the members would have a vote on management decisions. b. The members would elect a group of managers, taken only from the LLC members, to manage the firm. c. The members would designate a group of only non-member managers to manage the firm. d. The members would designate a group of members, non-members, or a combination of both, to manage the firm.

a. All of the members would have a vote on management decisions. (Because this LLC is member-managed, all of the members of the LLC would participate in the management decisions of the business. The general rule is that decisions would be made by majority vote. ULLCA § 404(a).)

Assume the football team is set up as a limited liability company (LLC), that Lenny, Sarah, and Sam are the owners of the LLC, and it is a member-managed firm. Which of the following is incorrect? a. The company must be formed through compliance with state statutes. b. Distribution of the profit among the partners would be determined by statute, even if it was spelled out in the LLC agreement. c. The profits from the team would pass through to the partners unless the LLC chooses to be taxed as a corporation. d. If any of the members were to act as a manager of the business, they would not lose their limited liability protection.

b. Distribution of the profit among the partners would be determined by statute, even if it was spelled out in the LLC agreement. (The profits (income) of an LLC will be passed-through to the LLC's members, as long as the LLC is taxed as a partnership. If the members acted as managers, they would not lose their limited liability protection. Distribution of the profits among the partners would be determined by the agreement. If an agreement did not exist or was otherwise silent on this issue, then the profits would be distributed pursuant to the applicable statute. The LLC must be formed in compliance with the appropriate state statutes.)

Assume the football team is set up as a limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. Which of the following statements is true? a.The LLC is always taxed like a partnership. b.The LLC is always taxed like a corporation. c.The LLC can choose to be taxed like a corporation or like a partnership. d.Neither the LLC nor its members pay tax on profits earned by it.

c.The LLC can choose to be taxed like a corporation or like a partnership. (The default rule is that an LLC (with more than one member) will be taxed as a partnership; however, an LLC can elect to be taxed as a corporation.)

Assume the football team is set up as a limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. The articles of organization specify that it is a manager-managed firm. Which of the following statements is true in regards to management of the firm, such as the decision of whether to fire the quarterback? a. All of the members would have a vote on management decisions. b. The members would elect a group of managers, taken only from the LLC members, to manage the firm. c. The members would designate a group of only non-member managers to manage the firm. d. The members would designate a group of members, non-members, or a combination of both, to manage the firm.

d. The members would designate a group of members, non-members, or a combination of both, to manage the firm. (Because this is a manager-managed LLC, the members would designate a manager or managers to make management decisions. The manager or managers could be members, non-members, or any combination thereof.)

Assume the football team is set up as a limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. The team is sued for negligence because an individual who turned to see the quarterback running naked crashed her car. Which of the following is true? a.The LLC may have liability, as well as the owners individually, and the owners' liability is unlimited. b.The LLC may have liability, as well as the owners individually, but the owners' individual liability is limited to twice their investment in the company. c.The individual owners may have liability, but not the LLC itself. d.The LLC may have liability, but not the individual owners.

d.The LLC may have liability, but not the individual owners. (Because of the liability protection of a limited liability company, members in an LLC are not personally liable debts of the LLC. An exception to this is if the member has personally guaranteed any debts of the LLC. A member's potential loss is limited to their investment in the LLC. Any other value accrued or assets in the LLC would be exposed to creditors, but the member's personal assets would not.)

Assume the football team is set up as a limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. Lenny, Sarah and Sam are properly referred to as: a.limited partners. b.partners. c.shareholders. d.members.

d.members. (The owners of an LLC are referred to as members.)