Business Law, Chapter 38: "Limited Liability Companies and Special Business Forms" flash cards

Limited Liability Company

(38-1) A hybrid form of business enterprise that offers the limited liability of a corporation and the tax advantages of a partnership.

Member

(38-1a) A person who has an ownership interest in a limited liability company.

Member

(38-1a) A person who has an ownership interest in a limited liability company.

Articles of Organization

(38-2) The document that is filed with the appropriate state official, usually the secretary of state, when a limited liability company is formed.

Operating Agreement

(38-2c) An agreement in which the members of a limited liability company set forth the details of how the business will be managed and operated.

Joint Venture

(38-4a) A joint undertaking by two or more persons or business entities to combine their efforts or their property into a single transaction or project, or for a related series of transactions or projects.

Syndicate

(38-4b) A group of individuals or firms that join together to finance a project (also referred to as an Investment Group).

Joint Stock Company

(38-4c) A hybrid form of business organization that combines characteristics of a corporation and a partnership. Usually, it is regarded as a partnership for tax and other legal purposes.

Business Trust

(38-4d) A form of business organization, created by a written trust agreement, that resembles a corporation. For this business, legal ownership and management of the trust’s property stay with the trustees, and the profits are distributed to the beneficiaries, who have limited liability.

Cooperative

(38-4e) An association, which may or may not be incorporated, that is organized to provide an economic service to its members. An unincorporated form of this business is often treated like a partnership for tax and other legal purposes.

D) The applicable state LLC statute.

2) A dispute arises among the members of B2B, LLC, that is not addressed in their operating agreement. What will most likely be the resolution of this dispute?

A) The principles of partnership law.
B) The federal LLC Act.
C) The state corporation statute.
D) The applicable state LLC statute.

D) If Marj and Donna do not otherwise specify, voting rights will be apportioned according to capital contributions.

6) Marj and Donna have decided to form an LLC. Which statement is correct about LLC formation?
A) If Marj and Donna fail to write an operating agreement, their LLC will be governed by the Federal Limited Liability Corporation statute.
B) If Marj and Donna do not otherwise specify, voting rights will be apportioned equally.
C) If Marj and Donna do not otherwise specify, their LLC will be manager-managed.
D) If Marj and Donna do not otherwise specify, voting rights will be apportioned according to capital contributions.

A) All members.

7) 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:
A) All members.
B) No members.
C) One member.
D) Two members, including at least one general partner.

C) Gary owes a duty of loyalty to Barn, LLC.

12) Gary is a manager of Barn, LLC. He decides to start his own business while still working for Barn, LLC, which will compete with Barn. Which statement is correct?
A) Gary owes a duty of care to Barn, LLC, but not a duty of loyalty.
B) Gary owes fiduciary duties to Barn, LLC, only if he is also a member.
C) Gary owes a duty of loyalty to Barn, LLC.
D) Gary does not owe any fiduciary duties to Barn, LLC.

False

14) True or False: If an LLC’s operating agreement does not specify how profits will be divided, most state LLC statutes require profits to be divided based on capital contributions.

False

7) True or False: In the absence of a contrary provision in the operating agreement, a rightful dissociation by a member of an LLC grants that member the unilateral right to demand judicial dissolution of the LLC.

C) Duty of care.

8) Aron, a member of Broccoli, LLC, dissociates from the firm. Concerning events that occurred before this split, dissociation does not terminate Aron’s:
A) Duty of loyalty.
B) Right to participate in management.
C) Duty of care.
D) Right to act as an agent for the LLC.

A) Has no right to force the LLC to dissolve.

9) Regardless of whether a member’s dissociation was rightful or wrongful, normally, the dissociated member:
A) Has no right to force the LLC to dissolve.
B) Has every right to force the LLC to dissolve.
C) Has the right to ask the remaining members to either continue or dissolve the business.

D) None of these choices.

False

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

A) Honoria’s bankruptcy triggers her dissociation from the firm.

15) Honoria is a member of Abel LLC. She encounters some financial difficulties and is forced to declare bankruptcy. Which statement below is correct?
A) Honoria’s bankruptcy triggers her dissociation from the firm.
B) Honoria’s bankruptcy will cause her dissociation from the firm only if a court orders.
C) Honoria’s bankruptcy has no impact on Abel LLC.
D) Under the ULLCA, Abel will be required to dissolve because of Honoria’s bankruptcy.

B) Incorporated cooperatives distribute dividends based on transactions with the cooperative, not the capital dividend.

10) Which of the following statements is true regarding incorporated cooperatives?
A) Incorporated cooperatives distribute dividends based on the amount of capital contributed by members.

B) Incorporated cooperatives distribute dividends based on transactions with the cooperative, not the capital dividend.
C) Members of incorporated cooperatives do not receive dividends or profits.
D) Members of incorporated cooperatives have unlimited liability, similar to general partners in a partnership.

C) A hybrid of a partnership and a corporation.

11) A joint stock company may be described as:
A) An association that is organized to provide an economic service to its members.
B) An arrangement in which a patent, trademark, trade name, or copyright owner transfers to another the right to use the patent, trademark, or trade name in distributing goods or services.
C) A hybrid of a partnership and a corporation.
D) A business organization in which the investors transfer cash or property in exchange for trust certificates.

C) Unincorporated cooperatives are not treated like partnerships and do not have joint liability.

12) Which of the following is true regarding unincorporated cooperatives?
A) Unincorporated cooperatives have limited liability for the cooperative’s acts.
B) Members of unincorporated cooperatives have joint liability for the cooperative’s acts.
C) Unincorporated cooperatives are not treated like partnerships and do not have joint liability.
D) Unincorporated cooperatives are treated like corporations and offer the same protections to members.

A) Its shareholders have personal liability.

15) A joint stock company has many features of a corporation. Which of the following is not one of how a joint stock company is like a corporation?
A) Its shareholders have personal liability.
B) Its ownership is represented by transferable shares of stock.
C) It can have perpetual existence.

D) It is usually managed by directors or officers of the company.