CH 38 T/F Limited Liability Companies and Special Business Forms

To form an LLC, which of the following must be filed with a central state agency:

((articles of organization.)) articles of limited partnership. articles of consolidation. articles of incorporation. To form an LLC, articles of organization must be filed with a central state agency.

A hybrid form of business organization that combines characteristics of a corporation and a partnership is a(n):

((joint stock company) investment syndicate. corporate partnership. syndicate. A hybrid form of business organization that combines characteristics of a corporation and a partnership is a joint stock company.

In a limited liability company, members must participate in the management of the company.

False An LLC can be managed by non-owner managers.

A limited liability company's operating agreement must be in writing.

False Note that a writing is always recommended since it is difficult to prove the terms of an oral agreement.

A limited liability company must have an operating agreement.

False Note that although an operating agreement may not be required under state law, it is strongly recommended that an LLC have one. This is because an operating agreement allows the members to run the limited liability company as they wish, rather than be governed by an LLC statute that may not reflect the parties' intent.

On a member's wrongful dissociation from a limited liability company, the dissociating member can force the LLC to dissolve.

False Note that even if the dissociation is rightful, the dissociated member normally does not have the right to force the LLC to dissolve.

In a limited liability company, members cannot participate in its management.

False Note that most LLC statutes, which apply where the members have failed to agree otherwise, provide for member management.

When a member dissociates from an LLC, his or her duty of loyalty continues as to events that occurred before the dissociation.

False The duty of loyalty is terminated by the dissociation.

Ike and Fritz form an LLC to operate a pumpkin farm. Each contributes $50,000 to the venture. They sign an operating agreement that includes language about the amount to be paid out if a member dissociates. Fritz later dissociates in violation of the operating agreement. Which statement is correct?

Fritz is entitled to the amount specified in the operating agreement, but is liable for any damages caused by his dissociation. Because Fritz' dissociation was wrongful, he is liable for any damages his dissociation caused.

Marj and Donna have decided to form an LLC. Which statement is correct about LLC formation?

If Marj and Donna do not otherwise specify, voting rights will be apportioned according to capital contributions. This is how voting rights are apportioned under partnership law, unless the partners otherwise agree.

Sam, Dusty, and Ginger formed an LLC to manufacture dog food. Sam later rightfully dissociated. Which statement is correct?

If the operating agreement fails to establish a buyout price, under the ULLCA Sam is entitled to the fair value of his interest. Sam is not entitled to receive whichever figure is higher.

Quad-State Sales, LLC, is a limited liability company. Rita, a Quad-State salesperson, is in an accident in South Dakota with Tim, a citizen of Montana. Tim files a suit against Quad-State in a federal district court. For purposes of federal court jurisdiction, the citizenship of the firm is the same as the citizenship of:

Quad-State's members. The site of the accident is irrelevant. Most courts view LLCs as citizens of every state where their members are citizens.

The dissociation of a member of a limited liability company in violation of the operating agreement is legally wrongful.

True Where a member's dissociation violates the operating agreement, it is legally wrongful.

In a limited liability company, members do not have to participate in its management.

True In a manager-managed LLC, the managers can be members, non-members, or a mix of the two.

A limited liability company is bound by the reasonable acts of its members during the winding up process.

True The winding up process involves collection, liquidation, and distribution of the firm's assets. The LLC is bound by the reasonable acts of its members during this period.

To wind up the business, LLC members must collect, liquidate and distribute the firm's assets.

True Winding up involves gathering and liquidating the firm's assets. The proceeds are used first to pay off firm debt and then to return capital contributions. Any amount remaining is paid to the members in equal shares or according to the operating agreement.

Jonathan and Sarah have decided on a manager-managed form for their LLC. This means that:

all members participate in management. managers owe fiduciary duties only to themselves. ((members designate a person or group of persons to manage the firm.)) none of these choices.

Jason, Julian, and Rebecca are members of a longstanding and successful LLC. The three members want to dissolve their LLC and distribute their assets, but they know the LLC has debts as well. Once all the LLC's assets have been sold, the proceeds:

are distributed to pay off creditors first, member capital contributions next, and lastly any remaining amounts to members in equal shares or according to the operating agreement. The proceeds are distributed to pay off debts to creditors first (including debts owed to members who are creditors of the LLC). The members' capital contributions are returned next, and any remaining amounts are then distributed to members in equal shares or according to their operating agreement.

The joint venture is taxed like a:

business trust corporation. non-profit corporation. ((partnership.))

Resource Development Company and Western Mining Corporation form a joint stock company. Like most joint stock companies, it is managed by:

directors and officers. A general partner manages a limited partnership. Joint stock companies are managed by officers and directors.

In determining jurisdiction, the courts have tended to regard LLC's as citizens of:

every state in which their members are citizens. The courts do not consider LLCs to be only citizens of the state in which their principal place of business is located. The federal jurisdiction statute provides that a corporation is deemed to be a citizen of the state where it is incorporated and maintains its principal place of business. But the statute does not mention the citizenship of partnerships, LLCs, and other unincorporated associations. The courts have tended to regard these entities as citizens of every state in which their members are citizens.

Evan is the trustee of a business trust of which Aileen is the beneficiary. Under the terms of a business trust, Evan:

is required to report the income of the trust on his personal tax return. is entitled to the trust profits. is prohibited from managing the property of the trust. ((is required to manage the property.)) In a number of states, business trusts pay corporate taxes.

A hybrid form of business organization that combines characteristics of a corporation and a partnership is a(n):

joint stock company. A hybrid form of business organization that combines characteristics of a corporation and a partnership is a joint stock company.

Aaron and Brianna are both members of an LLC, but have disagreed strongly on how to conduct the business. As a result, Aaron dissociates himself from the LLC. This means that Aaron:

loses the right to participate in management. loses the right to act as an agent for the LLC. ((((loses both the right to participate in management and the right to act as an agent for the LLC.)) none of these choices.

Jonathan and Sarah are forming an LLC. They will be its only members. Sarah and Jonathan know they have choices about how the LLC will be managed. If both agree to manage the LLC, it will be a:

member-managed LLC. If both Jonathan and Sarah agree to manage the LLC, it will be a member-managed LLC, since the two of them constitute all of the members of the LLC.

Macro Distribution, Inc., and Micro Delivery Company form a joint stock company. Its owners are:

neither agents of each other nor shareholders in the company. agents of each other only. ((shareholders in the company only.)) agents of each other and shareholders in the company. The owners of a joint stock company are considered to be shareholders in the company.

Barney Excavation is a limited liability company. If the law in Barney's state is like the law in most states, unless the members have agreed otherwise, participants in the firm's management will be considered to include:

one member. no member. two members, including at least one general partner. ((all members.)) Most state LLC statutes provide that unless the articles of organization specify otherwise, the firm will be member managed.

A group of individuals or firms brought together for the purpose of financing a project that they would not or could not undertake independently is called a(n):

syndicate A group of individuals or firms brought together for the purpose of financing a project that they would not or could not undertake independently is called a syndicate.

Quad-State Sales, LLC, is a limited liability company. Rita, a Quad-State salesperson, is in an accident in South Dakota with Tim, a citizen of Montana. Tim files a suit against Quad-State in a federal district court. For purposes of federal court jurisdiction, the citizenship of the firm is the same as the citizenship of:

the state in which the accident occurred. Rita. the state of Quad-State's formation. ((Quad-State's members.)) Feedback: Incorrect. The site of the accident is irrelevant. Most courts view LLCs as citizens of every state where their members are citizens.