Chapter 38 Limited Liability Companies and Limited Partnerships

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 1. Beth and Carl want to form a limited liability company (LLC) to manage their seven Movie Time Video rental stores. LLC statutes have been adopted in
a. all states.
b. a majority of states.
c. only foreign countries.
d. only Wyoming.

____ 2. Computer Networks, LLC, is a limited liability company. Unless indicated otherwise on Computer Networks' federal tax form, the firm will be taxed as
a. a corporation.
b. a partnership.
c. a sole proprietorship.
d. none of the above.

____ 3. Bill is considering forms of business organization for his Web-site consulting firm. Most states require that a limited liability company have
a. no members.
b. one member.
c. two members.
d. three members, including at least one general partner.

____ 4. Cathy is considering forms of business organization for her advertising-art firm. Like most states, Cathy's state requires that to form a limited liability company, she must file, with a central state agency, articles of
a. certification.
b. incorporation.
c. organization.
d. none of the above.

____ 5. Interstate Trucking, LLC, is a limited liability company. Jack, an Interstate driver, is in an accident in New Jersey with Owen, a citizen of New York. Owen files a suit against Interstate in a federal district court. For purposes of federal court jurisdiction, the citizenship of Interstate is the same as the citizenship of
a. Interstate Trucking's members.
b. Jack.
c. the state of Interstate Trucking's formation.
d. none of the above.

____ 6. Sally is considering forms of business organization for her construction-equipment business. For purposes of owning property and being a party to litigation, forms that are legal entities separate from their owners include
a. corporations only.
b. limited liability companies only.
c. corporations and limited liability companies.
d. none of the above.

____ 7. Jill is considering forms of business organization for her general-merchandise wholesale business. One advantage of the limited liability company form, with respect to tax options, is its
a. flexibility.
b. lack of options.
c. rigidity.
d. none of the above.

____ 8. International Investments, LLC, is a limited liability company. Rather than distribute its profits to its members, International wants to reinvest the profits in its business. For this reason, International may prefer to be taxed as
a. a corporation.
b. a partnership.
c. a sole proprietorship.
d. none of the above.

____ 9. General Construction, LLC, is a limited liability company. Among the members, a dispute arises that their operating agreement does not cover. The dispute is governed by
a. the applicable state LLC statute.
b. the federal Uniform LLC Law.
c. the International LLC Governing Resolution.
d. none of the above.

____ 10. Computer Games, LLC, is a limited liability company. Among the members, a dispute arises that their operating agreement does not cover. No statute applies. The dispute is governed by the principles of
a. corporate law.
b. partnership law.
c. sole proprietorship law.
d. none of the above.

____ 11. CPA Accounting, LLC, is a limited liability company. If the law in CPA'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
a. all members.
b. no member.
c. one member.
d. two members, including at least one general partner.

____ 12. University Services, LLC, is a limited liability company. If the law in University's state is like the law in most states, unless the members have agreed otherwise, voting rights are apportioned according to each member's
a. capital contribution.
b. degree of participation in management.
c. tax liability.
d. none of the above.

____ 13. Adam is a member of Software Games, LLC, a limited liability company. Adam can participate in the firm's management
a. only after agreeing to assume full liability for the firm's obligations.
b. subject to liability for the firm's obligations to the extent of a general partner.
c. subject to liability for the firm's obligations to the extent of his participation.
d. without full liability for the firm's obligations.

____ 14. Gail & Hale, Accountants, LLP, is a limited liability partnership. If the law in Gail & Hale's state is like the law in most states, the law that applies to their firm is
a. corporate law.
b. partnership law.
c. sole proprietorship law.
d. none of the above.

____ 15. Marie is considering forms of business organization for her law firm. One advantage of the limited liability partnership form is that it allows partners to avoid personal liability for
a. their acts of malpractice.
b. the malpractice of other partners.
c. the obligations of the firm beyond the partners' capital contributions.
d. the obligations of the firm within the limit of partners' capital contributions.

____ 16. Excel Accounting Service, LLP, is a limited liability partnership that does business in the state in which it was formed and in a neighboring state. The two states provide different liability protection. If the law in the neighboring state is like the law in most states, the law that determines the liability of Excel is the law of
a. any third, "neutral" state.
b. Texas, the first state to enact an LLP statute.
c. the state in which Excel was formed.
d. none of the above.

____ 17. Donna and Earl are partners in The Law Firm, LLP, a limited liability partnership. Donna supervises Earl. Earl negligently fails to appear in court on behalf of Frank, a client. Frank sues Donna and Earl. If the principle of proportionate liability is applied, Donna will likely be held liable for
a. her portion of responsibility for Earl's negligence.
b. the amount of the loss that Earl is unable to pay.
c. the entire loss.
d. none of the above.

____ 18. Orchard Farms is a family limited liability partnership (FLLP). In an FLLP, all of the partners must be
a. natural persons only.
b. persons acting as fiduciaries for natural persons only.
c. natural persons or persons acting as fiduciaries for natural persons.
d. none of the above.

____ 19. Biotech Investments, LP, is a limited partnership. The partners sign an agreement purporting to state how the firm's profits and losses are to be divided. The profits and losses of the firm will be divided
a. according to the agreement.
b. equally, despite the agreement.
c. in proportion to each partner's capital contribution, despite the agreement.
d. in proportion to each partner's participation in the firm's management, despite the agreement.

____ 20. Best Management Associates, LP, is a limited partnership. In a limited partnership, as in a general partnership, the capital contribution of the partners must be set as
a. a mandatory amount.
b. a maximum amount.
c. a minimum amount.
d. none of the above.

____ 21. Rob, Sue, and Tony want to form a limited partnership to manage their real estate investments. A limited partnership must have at least
a. one general partner and one limited partner.
b. one general partner and two limited partners.
c. two general partners and one limited partner.
d. none of the above.

____ 22. Roy, Sam, and Tina agree to form a computer peripherals mail-order business. Roy agrees to manage the business and to assume full personal liability. Sam and Tina agree to invest in the firm but to be liable only to that extent. These three have formed
a. a limited liability company.
b. a limited liability partnership.
c. a limited partnership.
d. none of the above.

____ 23. Superior Storage, LP, is a limited partnership. Superior's partners, who have made capital contributions, include Todd. Superior's creditors include Universal Supply Company. On Superior's dissolution, the assets of the firm will be distributed to pay
a. Todd first.
b. Universal first.
c. Todd and Universal proportionately.
d. none of the above.

____ 24. Alice, Bob, and Carol want to form a limited partnership to manage two restaurants: Alice's Restaurant and Bob's Deli. In most states, a limited partnership will be created when
a. a certificate of limited partnership is filed.
b. a partnership agreement is executed.
c. the partners make their capital contributions.
d. none of the above.

____ 25. Don and Elaine are limited partners in Great Stores, a limited partnership. In terms of the firm's books, Don and Elaine are entitled to
a. access in proportion to their participation in the management of the firm.
b. access to those parts that directly relate to their capital contributions.
c. no access.
d. total access.

____ 26. Frank and Gail are limited partners in Travel Tours, a limited partnership. On the dissolution of Travel Tours, Frank and Gail are entitled to a return of their capital contributions in accordance with
a. their liability to the firm's creditors.
b. the extent to which they participated in the firm's management.
c. the partnership certificate.
d. none of the above.

____ 27. Larry is a limited partner in Associated Contractors, a limited partnership. Debts incurred by the firm come due, and the firm cannot pay them. Larry is liable
a. in proportion to the total number of partners in the firm.
b. to no extent.
c. to the extent of his capital contribution.
d. to the full extent of the debts.

____ 28. Environmental Engineering, LP, is a limited partnership. In terms of their rights in the firm, Environmental's limited partners have, in relation to the general partners, essentially
a. less rights.
b. more rights.
c. the same rights.
d. none of the above.

____ 29. Design Associates, LP, is a limited partnership. In terms of their liability for the obligations of the firm, Design's limited partners have, in relation to the general partners,
a. less liability.
b. more liability.
c. the same liability.
d. none of the above.

____ 30. Light Aircraft, LP, is a limited partnership. Mike, a limited partner, participates in the firm's management. New Parts Supply, Inc. (NPS), is one of the firm's creditors. Based on Mike's conduct, NPS believes that he is a general partner. In terms of his liability for the firm's obligations to NPS, Mike has, in relation to the general partners,
a. less liability.
b. more liability.
c. the same liability.
d. none of the above.

____ 31. Ted and Wally are limited partners in T&W Enterprises, a limited partnership. To avoid personal liability for partnership obligations, they must not
a. acquire an interest in the firm.
b. contribute cash or other property to the firm.
c. undertake any managerial responsibilities.
d. all of the above.

____ 32. Jay and Kyle are the only general partners of Foreign Auto Repair, a limited partnership. Jay dies in a sudden accident. Kyle wishes to continue the business of the firm and to continue as a general partner. Jay's death results in
a. continuation of the firm, after a distribution of the assets.
b. continuation of the firm, as a general partnership.
c. continuation of the firm, if all the partners consent.
d. none of the above.

____ 33. Master Architects, LLLP, is a limited liability limited partnership. In terms of their liability for the obligations of the firm, Master's general partners have, in relation to the limited partners,
a. less liability.
b. more liability.
c. the same liability.
d. none of the above.

____ 34. Tasty Pastry, a retail bakery, is a partnership. In terms of the firm's income taxes on its profits, each partner is liable for
a. a pro rata share only if the profits are distributed.
b. a pro rata share whether or not the profits are distributed.
c. the entire amount.
d. none of the above.

____ 35. Hal is a limited partner in El Dorado Mines, a limited partnership. Hal wants to assign his interest in the firm to Ira. The assignment would result in
a. dissolution of the firm, imposing liability on Hal to the firm's creditors.
b. dissolution of the firm, requiring a distribution of the assets.
c. dissolution of the firm, with automatic formation of a new limited partnership.
d. none of the above.