LGS Exam 3

Which of the following provisions are typically in an operating agreement for a limited liability company (LLC)? Choose 2 answers.

1. how membership interests may be transferred 2. whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC

What documents spell out the powers of a corporation? Choose 2 answers.

1. the bylaws 2. the charter (also called the articles of incorporation)

A sole proprietorship differs from a limited liability company (LLC) in:

The documentation required for formation

Pro Flowers LLC has been in business for five years. When one of its members dies, the other members of the LLC agree to dissolve the LLC. They proceed to wind up the business, collecting and liquidating all the assets of the LLC. Once that is done, the proceeds will be distributed:

first to creditors, then members' capital contributions will be returned, and any remaining amounts are then distributed to members in equal shares or according to their operating agreement.

Ellie, Josie, and Dylan are partners in a car dealership. Ellie gives notice to Josie and Dylan that she wants to withdraw from the partnership, and Josie and Dylan decide to continue the partnership without her. Shortly after Ellie leaves the partnership, she has lunch with an old friend, Justin. Justin has been looking for a new car and asks about the price of a particular car he saw on the website of the dealership, because he does not know that Ellie has left the partnership. Instead of telling Justin that she has left the partnership, Ellie quotes Dylan a price for the car, and Dylan accepts. When Dylan goes to the car dealership to complete the deal:

the dealership must honor the deal unless it has provided Dylan notice of Ellie's dissociation

Genna and four others are establishing a business to create monogrammed items of personal clothing to sell to the general public. Genna is concerned about entering into business with others and possibly being liable for their actions, so she convinces the others that they should incorporate. After doing some basic research on how to incorporate a business, Genna starts preparing the articles of incorporation. At a minimum, Genna must make sure that the articles of incorporation include:

the name of the corporation, the number of shares of stock the corporation is authorized to issue, the name and street address of the initial registered agent of the corporation and his or her registered office, and the name and address of each incorporator.

Lola, Jacy, and Tate plan to create a company to manufacture bicycles. After reviewing the pros and cons of the various forms of business enterprises, they decide to create a limited liability company. To create a limited liability company:

they must file a certificate of organization with the secretary of state and should create an operating agreement, although an operating agreement is not required.

Kaleb is the CEO of Sports City, a sporting goods store. Kaleb wants to increase the sales of Sports City. Kaleb researches the market and discovers that boat sales are soaring, so Kaleb decides to add a line of boats to the inventory of Sports City. Kaleb finds what he believes is a great deal on fishing boats with Fisherman's Boat Supply and enters into a contract for $90,000 worth of fishing boats. During the first year after the fishing boats are delivered to Sports City, only one boat sells. Sports City suffers an $85,000 loss on the deal. If the board of directors tries to hold Kaleb personally liable for the loss:

they will not be successful, because Kaleb will be protected by the business judgment rule.

What is true of the dissolution of a limited liability company (LLC)? Choose 2 answers.

1. A court may order the dissolution of an LLC under certain circumstances, such as the members engaging in illegal conduct. 2. Members of an LLC may stipulate in their operating agreement that certain events will cause dissolution.

What tax options are available to a limited liability company (LLC)? Choose 2 answers.

1. An LLC with only one member can choose to be taxed as a corporation or a sole proprietor. 2. An LLC with two or more members can choose to be taxed as a partnership or a corporation.

What are the three ways in which a partnership can be dissolved?

1. By an act of the partners 2. By a fixed term in the partnership agreement 3. By operation of law

Officers and directors owe which of the following duties to the corporation? Choose 2 answer choices.

1. Duty of Care 2. Duty of Loyalty

Which of the following are qualities of a non-profit corporation (choose 2 answers)?

1. It does not provide dividends to shareholders. 2. Its goal is to earn a profit.

Owners of the following business associations have limited liability protection (choose 2 answers):

1. Limited liability partnerships. 2. Limited liability companies.

At the first meeting of corporate shareholders, what business is normally conducted (choose 2 answers)?

1. The adoption of corporate bylaws 2. The election of the board of directors

Which of the following is a necessary element of the business judgment rule? Choose 2 answer choices.

1. The person acted with the care of an ordinarily prudent person. 2.The person acted in good faith.

What is required in the Articles of Organization for an LLC (choose 2 answers)?

1. The principal place of business 2.The name of the business

In which of the following would the business judgment rule not help a manager escape liability? Choose 2 answer choices.

1. When they committed an illegal act 2. When they did not act in the best interests of the corporation

Which of the following are rights of common shareholders? Choose 3 answers.

1. transferable ownership 2. voting on matters such as election of directors and proposals for mergers or liquidation 3. opportunity to inspect corporate books and records

In a manager-managed LLC, the designated manager may (choose 2 answers):

1.be from within the members of the company. 2.be from outside the members of the company.

If an action is permitted expressly by the corporate bylaws, but is prohibited by state law, a corporation:

1.does not have the power to act.

Alma owns fifty shares of common stock in Alpha Corporation. Alma also owns eighty shares of preferred stock in the same corporation. Alpha Corporation has an upcoming vote for a new director. In the election for the new board member of Alpha, Alma will be able to cast:

50 votes

In a distributorship:

A manufacturer licences a dealer to sell its products

A written agreement outlining the roles of partners, their rights, and their duties are called:

A partnership agreement

Any partner may

Act as an agent who binds the partnership

A member-managed LLC means:

All members participate, and decisions are made by majority vote.

Which of the following is a requirement for the initial formation of a corporation?

Articles of Incorporation

Ben and Jerry are partners in an ice cream shop. They both work in the ice cream shop and share profits and expenses equally. Jerry thinks that expanding their ice cream shop to include a soda fountain would attract more customers. Without getting Ben's approval on the deal, Jerry signs a contract with the construction company to begin building the soda fountain. When Ben finds out, he is furious and says that he will not be responsible for payment under the contract. The construction company can enforce the contract against:

Both ben and jerry

A partnership in which the liability is shared between all of the partners together or one or more individually is called:

Joint and several liability

Jasper, Saul, and Kenyon plan to open a new business providing sky-diving lessons and selling sky-diving equipment. Each of them plans to contribute the same amount of money to get the business started, and each will work for the business. Jasper is concerned about the possibility of being liable for the acts of Saul and Kenyon. Jasper also wants to make sure he does not pay more taxes than required. After reviewing the types of business entities available, Jasper suggests to Saul and Kenyon that they organize their new business as a(n):

LLC.

What are TWO disadvantages of a sole proprietorship

Limited capital and personal liability for debts

Which statement is true about creating a sole proprietorship?

No documentation is required

Tala operates Sunshine Event Planning as a sole proprietorship. Lately, Tala has become dissatisfied with her employee, Leon. Leon continually refuses to follow directions, calls in late to work, and generally is not performing up to Tala's standards. Before Tala can fire Leon, she must obtain approval from:

No one

What type of corporation is formed for the purpose of doing a public service instead of making money?

Nonprofit

While shopping in your local Wal-Mart store, you slip and fall on a wet spot in the grocery aisle. You break a hip, incur huge medical bills, and miss several weeks at work. You know that Wal-Mart is a huge corporation and that thousands of people own stock in Wal-Mart, so you start thinking about who you can sue to recover for your injuries. What do you think would happen if you tried to sue not only Wal-Mart but also all the people who owned stock in Wal-Mart?

Only Wal-Mart might be held responsible

When a new partner joins a previously existing partnership, the new partner is personally liable for:

Only obligations after becoming a partner

Limited liability means:

Owners are only liable to the extent of their capital contribution to the business.

What is a disadvantage of operating as a partnership?

Partners may suffer finacial loss if the partnership is not profitable

What are advantages of operating as a partnership? Choose 2 answers.

Partnerships are not taxed and forming a partnership is simple and inexpensive

In order to capitalize a sole proprietorship, an owner is likely to

Pay out of their own pocket or undergo personal debt.

Partners have what duties?

Recor keeping, fiduciary duties, capital contribution

The formation of a partnership without a partnership agreement requires

Sharing of management duties, profits, and losses

Johnson lives near Dollywood, a popular theme park in Tennessee. Johnson decides to begin a new money-making venture selling screen printed t-shirts from a booth just down the road from the theme park, to take advantage of the traffic that flows by on its way to the park. Johnson's t-shirts, however, will not be Dollywood-themed t-shirts; they will be Johnson's own creations. Johnson's daughter Susan helps him in his new venture by manning the booth from time to time, but Johnson has total control over everything about the business—from ordering the t-shirts, paying the bills, pricing the t-shirts, paying the taxes on his sales, and receiving all the profits from the venture. Even though Johnson put no thought into what kind of business venture he was creating when he started his business, Johnson has effectively created a:

Sole proprietorship

The simplest form of business to establish is a

Sole proprietorship

What is true of the liability for loss or injury caused by the wrongful acts or omissions of the members of limited liability companies (LLCs)?

The LLC as an entity can be held liable, but members themselves are not personally liable.

A sole proprietorship differs from a partnership in:

The number of owners

Which of the following defines the "implied powers" of a corporation?

The right to perform all acts reasonably necessary to accomplish a corporate purpose

Jerry Hall and Lawrence Vaught practice law in the same building. They share equally in the overhead expenses, such as rent and utilities, required to keep the business running. Both Jerry and Lawrence handle their own cases, consult and accept their own clients, and purchase their own advertising. Jerry and Lawrence do occasionally handle a case together, and they have stationery that says "Hall and Vaught" on the letterhead. They each have their own stationery as well. Jerry and Lawrence keep their finances separate, except when they handle a case together; then, they split the proceeds equally. When a client of Jerry's becomes dissatisfied and sues Jerry for malpractice, she sues Lawrence as well. In deciding whether or not a partnership exists here, the court will look at:

Whether Jerry and Lawrence share profits and losses, whether they own the business jointly, and whether they have an equal right to be involved in the management of the business

Where should Articles of Incorporation be filed?

With the state

You are thinking about buying a restaurant with some of your buddies from college. One of the first things you need to discuss is what kind of business entity you want to create. You want to make sure that you are liable for only what you do, not what any of your buddies do. However, you're also concerned about getting the best tax deal. Do you think there is a way to organize your business so that you are not liable for your buddies' actions or debts without risking paying more taxes?

Yes, you could organize your business as a limited liability company

You and your buddy want to start a new landscaping business. You equally invest in the equipment you need to get started. You will both be equally responsible for the work and will share the profits equally. After investigating the possible forms of business entities available, you decide a partnership would be the best for your landscaping business. What do you think you might need to do to form a partnership?

You and your buddy just need to agree to be partners.

A corporation that is formed in one state but does business in another state is referred to in the second state as:

a foreign corporation.

To meet the standard for the duty of care, a person must:

act in good faith and with the judgment of an ordinarily prudent person.

Which of the following is a requirement for the formation of a limited liability company (LLC)?

articles (or certificate) of organization

Kelly lives in Arkansas and works in the data division of Acxiom Corporation. Acxiom has its headquarters in Conway, Arkansas. Acxiom is incorporated in Delaware, however, because of the corporate-friendly laws in that state. Kelly works in a(n):

foreign corporation because Acxiom is incorporated in a different state than the division where Kelly works.

Which of the following is a duty of both corporate directors and corporate officers?

making a full disclosure of potential conflicts of interest

Bart, Sam, and Greg create Big Barns Sales LLC, a company that builds pre-constructed barns. They file the certificate of organization with the secretary of state and create an operating agreement for the LLC. The operating agreement, however, does not address the method by which the LLC will be managed. Because management of the LLC is not addressed in the operating agreement, it is assumed the LLC will be:

member-managed; all members will vote on decisions of the LLC, and the majority vote controls

A foreign corporation is:

one that was incorporated in a different state.

Which of the following documents spells out the rights and duties of the members of a limited liability company (LLC)?

operating agreement

Common shareholders have the right to vote on:

proposals for fundamental changes affecting the company such as mergers or liquidation.

Which of the following rights may a member of a limited liability company (LLC) transfer to a non-member?

sharing the company's financial profits

Lillian applies for a job as the chief financial officer (CFO) of Delco Corporation. Lillian is excited about the opportunity and feels that she has a pretty good chance of getting the position. Just to make sure, Lillian decides to explore the backgrounds of the decision-makers at Delco. If Lillian knows their interests, she thinks that might increase her chances of making a good impression in the final interview. The decision-makers who will decide whether or not Lillian gets the CFO position at Delco Corporation include:

the board of directors.

Who is liable for contracts entered into on behalf of the corporation before the corporation is formed?

the promoter

An operating agreement for a limited liability company:

typically includes provisions about choosing the LLC's management.

In ordinary circumstances, when the corporate veil has not been pierced, a shareholder may be liable for:

unpaid amounts on the shares held by that shareholder.

The legal effects of dissociation of a member of a limited liability company (LLC) include: (Choose 2 answers.)

1. the dissociated member's duty of loyalty to the LLC terminates. 2. the dissociated member loses the right to participate in management.

Which of the following provisions are typically in a charter/Article of Incorporation for a corporation? Choose 2 answers.

1. the intended business purpose of the corporation 2.the name and address of the corporation's agent

Anita is a member of Three Roses Nursery LLC, and is also one of the managers of the LLC. This means that Anita and her fellow member-managers vote on decisions that need to be made for the company, and the majority vote controls on those decisions. One day, the member-managers discuss a possible new contract with a potential supplier, Heartland Seedlings Co. Anita is a part-owner in Heartland Seedlings, and she would benefit greatly if Three Roses enters into the contract. The contract would cost Three Roses more money than their existing contract, but Anita pushes the other member-managers to agree to the contract anyway. By pushing the other member-managers to agree to the more expensive contract, Anita has:

violated the duty of loyalty.

Most limited liability company (LLC) statutes provide that unless the articles of organization specify otherwise, an LLC is assumed to be managed by:

its members.