BUS LAW EXAM 4 - LPs/LLPs/LLCs

Arthur and Alan decided to open a retail store and to operate the business as a partnership. Because they needed additional funds to get the business in operation, they asked Jayne whether she would like to invest money in business and become a limited partner. Assuming that Jayne becomes a limited partner, which of the following statements is accurate? a. Jayne's status as a limited partner gives her a substantial stake in the operation of the business; therefore, she is entitled to participate in the day-to-day management of the business to protect her investment. b. If Jayne later becomes an employee of the limited partnership, she will lose the advantage of the limited liability that ordinarily accompanies limited partner status. c. Jayne will not have personal liability for partnership debts, although it is possible that partnership losses may be so significant that she will lose the money she invested in the business. d. None of the above.

C

Which of the following is not required to be included in a Certificate of Limited Partnership? a. The name of the limited partnership. b. The name and address of an agent for service of legal process. c. The name and address of each general partner. d. The portion of profits to be distributed to each limited and general partner. e. The latest date on which the limited partnership is to dissolve.

D

The attributes of a limited liability partnership (LLP) are: a. A partner's liability for his partners' professional malpractice is limited to the partnership's assets. b. A partner retains unlimited personal liability for his/her own malpractice c. A partner retains unlimited personal liability for all non-professional obligations of the partnership. d. A and B only. e. A,BandC.

E

A limited liability company (LLC) pays federal income tax just as a corporation does.

F

Although they are corporations, limited liability companies (LLCs) differ from other/regular corporations in that members of LLCs, unlike shareholders in corporations, are individually liable for LLC obligations.

F

In a limited partnership, a general partner's liability to partnership creditors is limited to the amount of his capital contribution.

F

The Revised Uniform Limited Partnership Act's (RULPA's) provision on post-dissolution distribution of limited partnership assets allows the partners to eliminate the priority position of creditors by agreeing unanimously that creditors' claims will be paid after the partners have received the return of their capital.

F

Jill is a limited partner in the Aanama Limited Partnership. Jill invested $5,000 to buy her interest. Jill is one of ten (10) partners, two (2) of whom are general partners. Aanama has gone bankrupt, with debts exceeding assets by $96,000. The partnership creditors sue all the partners for these debts. Based on these facts, the most that Jill must now contribute is: a. $0. b. $4,600. c. $5,000. d. $9,600. e. $96,000.

A

Which of the following is an accurate statement about limited liability companies (LLCs)? a. An LLC pays no federal income tax; instead, income of an LLC is reported by its members on their tax returns. b. LLC members are individually liable for LLC obligations. c. Because an LLC is not an entity separate from its members, an LLC cannot be sued in its own name. d. Although an LLC is not an entity separate from its owners, an LLC may sue in its own name.

A

Which of the following is an inaccurate statement about limited liability companies (LLCs)? a. Most states that have LLC statutes require that an LLC have at least three, but no more than ten, members. b. Members or mangers who manage an LLC are fiduciaries of the LLC. c. "Bogus Co." would not be a proper name for an LLC. d. The Internal Revenue Service has ruled that LLCs are recognized/treated as partnerships for federal income tax purposes.

A

Beau and Candy are the only general partners in a limited partnership. Each has contributed capital of $40,000. Maggie and Cosmo are the only limited partners in the firm. Maggie has contributed capital of $40,000. Cosmo has contributed capital of $80,000. The limited partnership has a profit of $180,000 to distribute. Under the Revised Uniform Limited Partnership Act (RULPA) rule for sharing of profits, what is Cosmo's share of the profit? a. $45,000 b. $72,000 c. $80,000 d. $92,000

B

Nimble was a general partner in Shaky Limited Partnership prior to the firm's dissolution. Before the dissolution, Nimble loaned the firm $10,000. The loan was not repaid before the dissolution took place. Shaky also owes debts to creditors X, Y, and Z. When Shaky's assets are liquidated and distributed, what priority does the RULPA give to Nimble's claim for repayment of the loan, in relation to the priority given to the claims of X, Y, and Z? a. A lower priority than what is given to the claims of X, Y, and Z, because the loan by Nimble is considered a contribution of capital. b. A higher priority than what is given to the claims of X, Y, and Z, because Nimble is a partner-creditor. c. The same priority given to the claims of X,Y, and Z, because in this situation Nimble is considered a creditor of the firm. d. No priority whatsoever, meaning that Nimble's claim will be paid only if assets remain after all other claims of whatever nature are paid.

C

Chip is one of the limited partners and Skip and Bambi are the general partners in a certain limited partnership. The business of the limited partnership is investing in works of art. Chip has received reliable information indicating that Skip and Bambi have been buying and selling some works of art on their own, without making the opportunities available to the limited partnership. Although Chip would like to bring a derivative suit against Skip and Bambi on the theory that they breached their fiduciary duties to the limited partnership, he is concerned that by doing so, he may forfeit his limited liability (as a limited partner). Will he lose his limited liability if he brings the derivative suit? a. Yes, because the decisions of Skip and Bambi not to have the partnership involved in certain purchases and sales were ordinary business decisions. b. No, because limited partners have the same voice in management decisions that general partners have. c. Yes, because the filing of the suit would be an impermissible attempt to exercise control over the limited partnership's business. d. No, because a limited partners' attempt to enforce other partner's fiduciary duties does not constitute exercising control over partnership business.

D

In which of the following types of partnerships is the liability (limited liability as in loss of capital investment, and/or, unlimited liability -- as in personal liability) the same for all partners? a. General Partnership. b. Limited Partnership. c. Limited Liability Partnership. d. A and C only. e. B and C only.

D

What is the effect of having a corporation as the general partner of a limited partnership? a. The limited liability of the corporation will result in the limited partners having greater liability than they would otherwise have. b. Each shareholder of the corporation will be treated as a general partner of the limited partnership. c. Each shareholder of the corporation will be treated as a general partner of the limited partnership. d. The liability of the corporate general partner will be limited to the amount of its corporate assets.

D

Mary was a limited partner in a limited partnership that had four (4) total limited partners and one (1) general partner. Mary and one other limited partner invested $40,000 each in the partnership, the other two limited partners invested $60,000 each and the general partner invested $800,000. Their written limited partnership agreement made no mention as to the sharing of profits and losses. In the first year of operations the partnership had net income of $100,000. How much should be allocated to Mary? a. $25,000. b. $20,000. c. $10,000. d. $5,000. e. $4,000.

E

Although the addition of a new limited partner does not cause a dissolution of the former limited partnership, the addition of a new general partner does have that effect.

F

A proper certificate of limited partnership need not state the name of each limited partner.

T

Absent a contrary provision in the limited partnership agreement, a limited partner's withdrawal from the firm/LP does not result in dissolution of the limited partnership.

T

Although a limited liability company (LLC) and its members receive the same federal tax treatment as an S Corporation and its shareholders, the LLC does not share the S Corporation's limits on number and types of owners.

T

If a limited partner assumes personal liability on a specific partnership obligation, she does not thereby forfeit her limited liability concerning other partnership obligations.

T

In states that have enacted limited liability partnership (LLP) statutes, the liability of a partner in an LLP for his partners' malpractice is limited to the partnership's assets.

T

When a limited partnership is dissolved and there are no general partners who have not wrongfully dissolved the firm, a limited partner may perform the winding up of partnership affairs.

T