BLAW 3213 QUIZ 3

What is the process for collecting additional contributions from partners as necessary called?

A capital call

Limited liability partnerships (LLPs) are formed when a general partnership files __________ with the appropriate public official.

A statement of qualification

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

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

An individual planning to conduct a sole proprietorship under a trade name will also file a __________ certificate with a local or state office.

DBA

Who is responsible for oversight and management of the corporation's course of direction?

Directors

What occurs when an individual member of a limited liability company (LLC) decides to exercise the right to withdraw from the organization?

Dissociation

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 Partnership Act (RUPA) use to describe this act of separation?

Dissociation

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 limited liability company (LLC) is an inflexible type of business entity.

False

A limited partnership is legally defined as an association of two or more people who are co-owners and co-managers of the business and who share in the profits of their ongoing business.

False

A partner is liable to other partners and to the partnership if she makes a business decision that results in harm due to an ordinary mistake of judgment.

False

A partnership is a fictitious legal entity that exists as an independent entity separate from its principals.

False

A sole proprietorship cannot be terminated by an express act of the principal.

False

In every state, a limited liability company (LLC) is formed by filing the articles of incorporation with the designated public official in that state.

False

In the context of business entities, agent is a generic word for individuals who are entitled to the profits of a business based on their percentage of ownership.

False

Like most business entities, general partnerships are created by filing a form with the state.

False

Sixteen (16) states have adopted all or substantial portions of the model act known as the Revised Model Business Corporation Act (RMBCA).

False

The most common type of corporation is a publicly held corporation.

False

The owners or principals of a limited liability company (LLC) are called proprietors

False

The owners or principals of a limited liability company (LLC) are called proprietors.

False

Which of the following is true regarding the limited liability company (LLC)?

LLC members are insulated from personal liability for any business debt or liability (contract or tort) if the venture fails.

Which of the following is true regarding capitalization of the limited liability company?

LLC's are capitalized primarily through debt via private lenders or commercial lenders or through the sale of equity ownership in the LLC itself

Who manages the day-to-day operations of the corporation?

Officers

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

What is the name of an individual who begins to carry out a business venture's activities before actually filing the articles of incorporation?

Promoter

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

Suppose James "Snoopy" Stevenson ("Snoopy") plans to open a private investigative agency and enters into a one-year lease agreement for office space, signing on behalf of the soon-to-be-formed Out-of-Sight Investigations, Inc. One month later, Snoopy's financing falls through and he abandons the idea of incorporating his business. Which of the following is true regarding Snoopy's liability for the remaining eleven (11) months of the lease agreement?

Snoopy is a promoter, and he is therefore personally liable for the remainder of the lease

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 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

Suppose that Graham is the managing member of Mercury Running, LLC (Mercury), and signs a three-year lease agreement with a landlord on behalf of Mercury. One year into the lease, Mercury has a downturn in business, is forced to breach the lease, and moves out hoping to convert to an online business model. Which of the following is true regarding liability for the remainder of the lease?

The landlord's rights are against Mercury Running, LLC (Mercury) only.

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 regarding the taxation of a sole proprietorship?

The principal reports business income and expenses on her own individual tax return

Which of the following is true regarding termination of a sole proprietorship?

The proprietor's ownership interest in a sole proprietorship cannot pass to her heirs through a gift or 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

Which of the following is true regarding operating agreements?

They frequently govern limited liability companies (LLCs).

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 may a corporation be funded?

Through debt or through the selling or equity

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

A sole proprietorship is not subject to corporate income taxation, and no tax return is filed on behalf of the business.

True

Capital options for sole proprietors include private loans, commercial loans, commercial lines of credit, and unsecured credit.

True

Like an individual person, a corporation may file suit or be sued, or may form a contract or breach a contract.

True

The easiest single-person ownership entity to form and maintain is a sole proprietorship.

True

Under the Revised Uniform Partnership Act (RUPA), all partners face joint-and-several liability for contract and tort-related obligations.

True

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

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

The __________ rule protects __________ from liability for decisions that may have been unwise but did not breach the duty of care.

business judgment; officers and directors

A __________ agreement allows the remaining partners to purchase the partnership interest of a __________ partner.

buy-sell; withdrawing

In terms of factors to consider in choosing a business entity, issues such as how the business will fund its operations and whether the principal(s) may sell ownership rights in the business to raise money are related to the __________ factor.

capitalization

Upon a dissociation from a limited liability company (LLC), the remaining members may __________.

choose to either continue the LLC or initiate 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

A partner's __________ contribution represents the initial __________ investment into the partnership made by each partner.

equity; capital

A DBA name is sometimes known as a __________ name.

ficticious

A corporation that transacts business in a state other than its state of incorporation is known as a(n) __________ corporation in the other state.

foreign

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

The Revised Uniform Limited Liability Company Act (RULLC) imposes personal liability in cases where authorized members consent to a(n) __________, defined as any distribution of money made when the limited liability company (LLC) is __________.

improper distribution; insolvent

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 contributing capital or property.

limited; state

In terms of factors to consider in choosing a business entity, issues such as how and by whom the business venture will be operated, whether the principals will be involved in the day-to-day operations of the business, what duties the principals owe to the business and each other, how profits and losses will be split, and whether the remaining principals may continue to operate the business if a principal decides to leave the organization are related to the __________ factor.

management and operation

In a __________ limited liability company (LLC), a named manager (or managers) generally has the day-to-day operational responsibilities, while the non-managing members typically are investors with little input on the course of business taken by the entity except for major decisions (such as a merger).

manager-managed

In a __________ limited liability company (LLC), the management structure of the entity is similar to that of a general partnership.

member-managed

A privately held 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

A partner who is not in a position to make a capital contribution may be forced to __________.

sell his interest in the partnership

Who are the owners of the corporation?

shareholders

The easiest single-person ownership entity to form and maintain is a __________.

sole proprietorship

Articles of organization are also called __________.

the certificate of organization

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

Dissolution does not actually end the partnership, but instead triggers the process of __________.

winding up