BUL Unit 15
In a Limited Partnership, the General Partner's fiduciary duty is ______.
A duty of good faith and fair dealing to all partners in the partnership.
All of the following are considered advantages to a Limited Liability Partnership, except:
A limited liability partner is always insulated from personal liability of he or she commits malpractice.
Which of the following parties could claim an artisan's lien?
All of the above are eligible for an artisan's lien.
Which of the following is considered a disadvantage of doing business as a general partnership?
All partners are/may be held liable for partnership debts
A surety will remain liable when the creditor-principal agreement is modified if the surety consents to the modification
Any of the above
Mel, who owns a car repair shop, replaced the clutch in Ellen's car. Until Ellen pays for the repairs, Mel has a ______lien on the car.
Artisan's
A security interest in personal property in favor of one who has performed services on the personal property is an ________.
Artisan's lien
A(n) _______ is a legal proceeding accompanying an action in court by which a plaintiff may acquire a lien on a defendant's property as a security for the payment of any judgment that the plaintiff may recover.
Attachment
Jason has filed suit against Luke claiming $50,000 in damages. While the claim is being litigated, Jason can ask the court for a writ to seize property belonging to Luke which could be used to satisfy a judgment. The seizure prevents Luke from selling or otherwise disposing of the property during the proceedings. The writ Jason will ask for is a writ of________________.
Attachment
Under the "pass through" principle, a business entity
Avoids double taxation
In which of the following business organization do the losses as well as the profits pass through to the owners?
Both a and b
Rod and Todd have joint and several liability as sureties on a loan made to Rod's business by First Bank. Under this agreement, Todd is a ____ .
C0-surety
In a _______, a creditor must have made reasonable but unsuccessful attempts to collect from the principal before the guarantor can be held liable.
Conditional guaranty.
An extension of time of payment between a creditor and principal must be a valid agreement supported by ______ if it is to have an impact on the surety's liability.
Consideration
Persons who contract with the owner to furnish labor or material or construct a building are known as _________.
Contractors.
A surety is liable to the creditor as soon as the principal ________.
Defaults
A surety owes a _______ to the principal for any profits obtained after the surety performs.
Duty to account.
Which of the following is recognized as a disadvantage to doing business as an LLC?
Existing court decisions addressing LLC issues and formation are relatively undeveloped, which may lead to legal uncertainty when making business decisions.
A surety has no obligation to the creditor unless the principal _______.
Fails to perform.
A creditor can never be required to give the surety notice that the debtor is in default.
False
A creditor in possession of collateral given to him or her by the principal may return it to the principal without the consent of the surety.
False
A creditor must exhaust his or her judicial remedies against the principal before seeking to recover from the surety.
False
A disadvantage of the Limited Liability Company is that profits are taxed both as income to the corporation and as dividends to the members
False
A member of an LLC can never be personally liable for the debts of the LLC.
False
A surety and guarantor have always been treated as the exact same thing.
False
An LLC must have at least two members that participate in management in order to lawfully do business.
False
An artisan's lien is always assignable.
False
Any profits which a surety makes when called upon to perform the principal's duties belong to the surety.
False
Bonding companies are usually uncompensated sureties.
False
Compared to other business entities, a general partnership requires filing complex documentation with the secretary of state's office before it is authorized to do business.
False
Contracts of suretyship are legally indistinguishable from contracts of indemnity.
False
If you form an LLC you are required to have a written operating agreement.
False
In a Limited Liability Company, the unanimous consent of the members is required to hire a new employee.
False
In a limited partnership, a general partner's fiduciary duty is breached when limited partners are not permitted to participate in management.
False
In a limited partnership, each limited partner has an equal right to participate in the management of the business.
False
Individual members of the LLC can never bind the LLC in a valid and enforceable contract.
False
LLC combine the limited liability of the partnership and the tax advantages of corporations.
False
Lack of capacity and discharge in bankruptcy are two common defenses that are available to a surety that may be asserted against a creditor.
False
Limited Liability Companies are one of the oldest forms of business organization
False
Limited Partnerships offer a convenient way for professional and family-owned enterprises to do business.
False
Limited partnerships must have one general partner for every seven limited partners.
False
Misconduct of the principal that induces a party to become a surety allows that surety to avoid the contract.
False
The Statute of Limitations does not apply to surety contracts.
False
The general contractor is eligible for a mechanic's lien on the real property, but the subcontractors on the project are not.
False
The majority of states have not yet enacted Limited Liability Partnership enabling statutes.
False
The manager of a manager-managed Limited Liability Company may be a non-member.
False
The owner may be liable for more than the contract price even if they follow the statutory procedures.
False
The release of the principal always releases the surety.
False
State law requires that state chartered banks post bonds to protect the banks from losses caused by embezzlement by bank employees. The bonds posted by banks are __________bonds.
Fidelity
When a ________ is purchased, a bonding company promises to pay an employer any loss, not to exceed a stated amount, caused by the covered employees' embezzlement.
Fidelity bond.
A "certificate of limited partnership" is a document that is
Filed with the state Secretary of State by the limited partnership as part of its application process.
Pearl sued Sam and was awarded a judgment against him for $50,000. Sam has a savings account with First Bank that can be seized in partial satisfaction of the judgment. The writ the court will use ordering First Bank to turn over to it the funds in Sam's account is a writ of____________.
Garnishment
________ is a proceeding by which a plaintiff seeks to reach the assets of the defendant that are in the hands of a third party.
Garnishment.
Which business entity has the following characteristics: liability of the owners is limited to their investments; ownership interest is easily transferrable and there are no legal limits to the number of owners; owners elect the managers of the business who operate under duties of loyalty and due care; the entity is organized under state law and may have perpetual existence; profits are subject to double taxation?
General Corporation
Which of the following usually provides an investor the least protection from personal liability for the debts of the business?
General Partnership
In which of the following business forms are profits taxed at both the entity level and the owner level?
General corporation
A __________ is a party whose promise is not limited to a single transaction or to a single creditor.
General guarantor
Which business entity has the following characteristics: owners have unlimited personal liability for the debts of the business, and joint and several liability for the contracts and torts of the other owners; there are few formalities in creating the entity; profits are taxed only at the owner level?
General partnership
Any third party who promises a creditor to be liable for a principal's payment is either a surety or _________.
Guarantor
Which business entity has the following characteristics: owners are normally professionals engaged in selling their services; owners have both limited liability for the debts of the entity and limited liability for the contracts and torts of the other owner-professionals; the entity is organized under state law; profits are taxed only at the owner level?
Limited Liability Partnership
In which of the following business organizations does an owner risk losing his or her limited liability by actively and publicly managing the business?
Limited Partnership
All of the following could be recognized as advantages of doing business as a limited partnership, except:
Limited partners can actively share in management of the partnership, without incurring the risks of business liabilities.
An LLC in which non-owners are hired to run the day to day activities of the firm is a ______LLC.
Manager-managed
A lien for the value of material and labor expended in the construction of buildings and other improvements is a _________.
Mechanic's lien.
All of the following are considered advantages of doing business as an LLC, except:
Members of the LLC may lawfully avoid filing personal tax returns with the IRS.
The usual procedure for a party seeking to perfect a mechanic's lien to file or record a ____ in the office of the county in which deeds to real estate are recorded.
Notice of lien
All of the following could be accurate statements about a general partnership, except:
Partnership liabilities in a general partnership are limited to the amount of capital contribution
A _______ provides protection against losses that may result from the failure of a contracting party to perform the contract as agreed.
Performance bond.
The right of first refusal refers to the right of LLC members to
Purchase the interest of another member in the LLC before it is offered to an outside buyer
Megan agreed to act as a surety on a personal loan First Bank made to Arthur. When Arthur defaulted on the loan, Megan paid off the loan obligation. Megan now has the right of ________against Arthur.
Reimbursement
A ________ is a party who limits his or her promise to a single transaction or to a single creditor.
Special guarantor.
Jo and Anna, who are mother and daughter, are co-owners of Joanna's Frocks. When the bank loaned money to the business, Jo and Anna agreed to be sureties on the loan. Under the loan agreement, Anna will be liable only if Jo defaults on her obligation as a surety. Anna is a __________on the loan.
Sub-surety
A ________ promises to be liable to the creditor only in the event that the surety refuses to perform and thereby defaults.
Subsurety
A ________ provides security for a creditor without involving an interest in the property, where the security for the creditor is provided by a third person's promise to be responsible for the debtor's obligation.
Suretyship.
A document that an LLC must submit to the secretary of state's office prior to doing business is ______.
The Articles of Organization.
Which of the following best describes the role of a general partner in a limited partnership?
The general partner manages the partnership and remains responsible for partnership liabilities.
Which of the following would a represent a breach of fiduciary duty by a general to the limited partners in a limited partnership?
The general partner uses certain partnership assets to secure a loan for a business venture that is not undertaken in the name of the partnership
In a Limited Partnership, a limited partners risk personal liability for partnership debts when __________.
The limited partner becomes overly involved in partnership affairs
A member of an LLC risk personal liability for participating in all of the following activities, except:
The member consistently votes against decisions that are ultimately approved by the majority of other members of the LLC.
When considering whether a partner has breached his or her fiduciary duties to the partnership, courts are likely to consider all of the following, except:
The partners personal net worth
All of the following are rights held by an individual member of an LLC, except:
The right to sell one's interest in the LLC without notifying or consulting the other members of the LLC
All of the following are functions of an LLC's Operating Agreement, except:
To indemnify members of the LLC from liability for any unlawful acts
A creditor can assign a general guarantor's promise to a new creditor for value.
True
A limited partner has liability to the full extent of his or her capital contribution.
True
A limited partner normally has no liability beyond his or her contribution
True
A limited partnership allows limited partners to be only liable for their capital contribution.
True
A principal who is discharged in bankruptcy is released from his duty to reimburse the surety.
True
A surety who only guarantees collection is entitled to notice.
True
A surety's obligation is a generally promise to do what the principal agreed to do.
True
Absent an agreement otherwise, a Limited Liability Company's operating agreement can only be amended with the unanimous consent of the members.
True
An artisan's lien is a special lien that applies exclusively to the liens artist receive on artwork they personally performed.
True
BOTH perforance bonds and fidelity bonds are sureties.
True
Because the LLC is a relatively new type of business entity, there are often fewer published court opinions addressing LLC issues.
True
Both contractors and subcontractors are entitled to a mechanic's lien against the owner for nonpayment of their accounts.
True
Co-sureties share joint and several liability to the creditor
True
Contractors have a longer period in which to file mechanic's liens that subcontractors or suppliers have.
True
If the formalities of creating a limited partnership are not met, a partnership will be treated by courts as a general partnership.
True
If the principal does not default, the surety never becomes liable to the creditor.
True
In a manager-managed LLC, a single person or a select group has the authority to control and make decisions for the LLC.
True
Limited Partnership must have at least one general partner.
True
Limited partners may lose the full amount their capital contribution if the limited partnership incurs debts that exceed its assets
True
One recognized advantage to a general partnership is that it allows partners to share in management and profits of the partnership.
True
State courts have the power to order that real property be sold to satisfy a mechanic's lien.
True
State law determines whether or not a mortgage will have priority over a mechanic's lien.
True
Subrogation means the substitution of one person in place of another.
True
The limited liability partnership is often an attractive option for professional associations such as law firms, accountants and medical doctors.
True
The two types of guaranty agreements are general and special.
True
Voluntary surrender of personal property subject to an artisan's lien generally terminates the lien.
True
When holders of mechanic's liens are equal in priority, and there are not sufficient funds to satisfy all their claims, they will share the funds that are available on a pro-rata basis.
True
Individual members of an LLC may do all of the following, except:
Using LLC funds to satisfy personal debts.
A _________ is the voluntary relinquishment of the right to a mechanic's lien before a notice of lien is filed.
Waiver.
If a judgment for dollar damages is not paid, the judgment creditor may apply for a ____
Writ of Execution
If a judgment for dollar damages is not paid, the judgment creditor may apply for a ______.
Writ of Execution
Absent an agreement otherwise, the members of an LLC have a statutory right to
all of the above are statutory rights
Rod and Todd have joint and several liability as sureties on a loan made to Rod's business by First Bank. Under this agreement, Todd is a _________________.
co-surety
Bob is a co-surety with Sue on a loan that was made to Sue's business. If the business defaults on the loan and Bob is required to pay the full amount, Bob has the right of ____________ against Sue.
contribution
California and New York allow only professional services firms to do business as Limited Liability Partnerships
true