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Unit 14 – Law & the Accountant

B. Requires a formal “doing business as” filing under state law if the proprietor will be conducting business under a fictitious name.
The formation of a sole proprietorship
A. Requires registration with the federal government’s Small Business Administration.
B. Requires a formal “doing business as” filing under state law if the proprietor will be conducting business under a fictitious name.
C. Requires formal registration in each state the proprietor plans to do business in.
D. Is not as easy and inexpensive to form as an S corporation.
C. A sole proprietorship located and registered in Florida may also conduct operations in Nevada and Michigan without having to register formally in those states.
Which of the following statements is true regarding sole proprietorships?
A. Equity capital from outside sources can be easily raised.
B. The proprietor has authority to make management decisions in accordance with rules set by the Small Business Administration.
C. A sole proprietorship located and registered in Florida may also conduct operations in Nevada and Michigan without having to register formally in those states.
D. An advantage of the sole proprietorship is its ability to exist even after the proprietor dies.
D. Yes Yes Yes
Bob decides to start a bicycle repair shop. He is the sole owner and raises additional capital by borrowing from a local bank. Which of the following may become at risk if Bob defaults on the repayment of the loan?
Assets of the Bob’s Equity Bob’s
Bicycle Capital Personal
Repair Shop Invested Assets

A. No No No

B. Yes No No

C. Yes Yes No

D. Yes Yes Yes

A. Sole proprietorships are subject to tax at both the business and individual level.
Which of the following is false regarding the taxation of a sole proprietorship?
A. Sole proprietorships are subject to tax at both the business and individual level.
B. All business deductions and losses carry straight through to the proprietor.
C. Income of the business must be reported by the proprietor.
D. The sole proprietorship only requires the filing of one return.
B. Yes No
When parties intend to create a partnership that will be recognized under the Revised Uniform Partnership Act, they must agree to
Conduct a Share Gross Receipts
Business for Profit from a Business

A. Yes Yes

B. Yes No

C. No Yes

D. No No

B. $40,000 $40,000 $40,000
Gillie, Taft, and Dall are partners in an architectural firm. The partnership agreement is silent about the payment of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half-time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50% of the business, and Gillie and Taft 25% each. How should profits of $120,000 for the year be divided?
Gillie Taft Dall

A. $60,000 $30,000 $30,000

B. $40,000 $40,000 $40,000

C. $30,000 $60,000 $30,000

D. $30,000 $30,000 $60,000

B. II only.
Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean may assert the rights to
I. Participation in the management of TLC
II. Cobb’s share of TLC’s partnership profits
A. I only.
B. II only.
C. I and II.
D. Neither I nor II.
B. II only.
Under the Revised Uniform Partnership Act, which of the following statement(s) is (are) correct regarding the effect of the assignment of an interest in a general partnership?
I. The assignee is personally responsible for the assigning partner’s share of past and future partnership debts.
II. The assignee is entitled to the assigning partner’s interest in partnership profits and surplus on dissolution of the partnership.
A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.
C. The death of an owner causes the termination of the business.
Which of the following is not a characteristic of both a sole proprietorship and a general partnership?
A. Equity capital may not be raised by selling shares of the business.
B. The business’s profits and losses are passed through to the owner(s).
C. The death of an owner causes the termination of the business.
D. A “doing business as” filing is usually required if the owner(s) will conduct business under a fictitious name.
D. No No
A partner’s interest in specific partnership property is
Assignable to Subject to Attachment
the Partner’s by the Partner’s
Individual Creditors Individual Creditors

A. Yes Yes

B. Yes No

C. No Yes

D. No No

B. Admission of a partner.
In a general partnership, which of the following acts must be approved by all the partners?
A. Dissolution of the partnership.
B. Admission of a partner.
C. Authorization of a partnership capital expenditure.
D. Conveyance of real property owned by the partnership.
D. May not earn a secret profit in dealings with the partnership or partners.
Partners have a fiduciary relationship with each other. Accordingly, a partner
A. May engage in a business that competes with the partnership if it is operated with his/her own resources.
B. May take advantage of a business opportunity within the scope of the partnership enterprise if the partnership agreement will terminate before the benefit will be received.
C. Must exercise a degree of care and skill as a professional.
D. May not earn a secret profit in dealings with the partnership or partners.
B. Will be effectively limited by the filing of a statement of partnership authority.
The apparent authority of a partner to bind the partnership in dealing with third parties
A. Will be effectively limited by a formal resolution of the partners of which third parties are unaware.
B. Will be effectively limited by the filing of a statement of partnership authority.
C. Would permit a partner to submit a claim against the partnership to arbitration.
D. Must be derived from the express powers and purposes contained in the partnership agreement.
A. I only.
Which of the following statement(s) is (are) usually true regarding general partners’ liability?
I. All general partners are jointly and severally liable for partnership torts.
II. All general partners are liable only for those partnership obligations they actually authorized.
A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.
D. Eller’s personal assets.
Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment against both Venture and Eller. Venture then entered bankruptcy. Under the RUPA, Trent will generally be able to collect the judgment in full from
A. Partnership assets but not partner personal assets.
B. The personal assets of Eller, Fort, and Owens.
C. Eller’s personal assets only after partnership assets are exhausted.
D. Eller’s personal assets.
A. Dawn’s personal liability for existing partnership debts will be limited to Dawn’s interest in partnership property.
Dawn was properly admitted as a partner in the ABC Partnership after purchasing Jim’s partnership interest. Jim immediately withdrew. The partnership agreement states that the partnership will continue on the withdrawal or admission of a partner. Unless the partners otherwise agree,
A. Dawn’s personal liability for existing partnership debts will be limited to Dawn’s interest in partnership property.
B. Jim will automatically be released from personal liability for partnership debts incurred before Dawn’s admission.
C. Jim will be permitted to recover from the other partners the full amount that Jim paid on account of partnership debts incurred before Dawn’s admission.
D. Dawn will be subjected to unlimited personal liability for partnership debts incurred before being admitted.
B. Joint venture.
Leslie, Kelly, and Blair wanted to form a business. Which of the following business entities does not require the filing of organization documents with the state?
A. Limited partnership.
B. Joint venture.
C. Limited liability company.
D. Subchapter S corporation.
B. Have two or more partners.
A general partnership must
A. Pay federal income tax.
B. Have two or more partners.
C. Have written articles of partnership.
D. Provide for apportionment of liability for partnership debts.
C. A general partnership.
What type of business organization may generally be formed without filing an organizational document or certificate with a state government agency or office?
A. A corporation.
B. A limited liability company.
C. A general partnership.
D. A limited partnership.
D. No No
Generally, under the Revised Uniform Partnership Act, a partnership has which of the following characteristics?
Obligation for Payment
Unlimited Duration of Federal Income Tax

A. Yes Yes

B. Yes No

C. No Yes

D. No No

A. It must be in writing if the partnership is to last for longer than 1 year.
Which of the following statements about the form of a general partnership agreement is true?
A. It must be in writing if the partnership is to last for longer than 1 year.
B. It must be in writing if partnership profits would not be equally divided.
C. It must be in writing if any partner contributes more than $500 in capital.
D. It could not be oral if the partnership would deal in real estate.
C. Inactive partners.
Under the Revised Uniform Partnership Act, which of the following have the right to inspect partnership books and records?
A. Employees.
B. Former partners.
C. Inactive partners.
D. Transferees of partners’ interests.
B. Yes No
When a party deals with a partner who lacks actual or apparent authority, a general partnership will be bound by the resulting contract if the other partners
Ratify Amend the
the Partnership
Contract Agreement

A. Yes Yes

B. Yes No

C. No Yes

D. No No

A. No, because the judgment was not against the partnership.
Fil and Breed are 50% partners in F&B Cars, a used-car dealership. F&B maintains an average used-car inventory worth $150,000. On January 5, National Bank obtained a $30,000 judgment against Fil and Fil’s child on a loan that Fil had cosigned and on which Fil’s child had defaulted. National sued F&B to be allowed to attach $30,000 worth of cars as part of Fil’s interest in F&B’s inventory. Will National prevail in its suit?
A. No, because the judgment was not against the partnership.
B. No, because attachment of the cars would dissolve the partnership by operation of law.
C. Yes, because National had a valid judgment against Fil.
D. Yes, because Fil’s interest in the partnership inventory is an asset owned by Fil.
C. May allow a partner to bind the partnership to representations made in connection with the sale of goods.
Which of the following statements is true regarding the apparent authority of a partner to bind the partnership in dealings with third parties? Under the RUPA, the apparent authority
A. Must be derived from the express powers and purposes contained in the partnership agreement.
B. Will be effectively limited by a formal resolution of the partners of which third parties are unaware.
C. May allow a partner to bind the partnership to representations made in connection with the sale of goods.
D. Would permit a partner to submit a claim against the partnership to arbitration.
C. Both I and II.
Under the Revised Uniform Partnership Act (RUPA), which of the following statements concerning the powers and duties of partners in a general partnership is(are) true?
I. Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the scope of the partnership agreement.
II. Each partner is subject to joint and several liability on partnership debts and contracts.
A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.
B. $100,000
Wilson and Thomas are partners. Wilson contributed $150,000 to the partnership, and Thomas contributed $50,000. Wilson does 40% of the work, and Thomas does 60%. They do not have a partnership agreement that addresses the sharing of profits and losses. By the end of the year, the partnership has earned a profit of $200,000. What is Wilson’s share of the profit under the Revised Uniform Partnership Act?
A. $80,000
B. $100,000
C. $120,000
D. $150,000
B. Number of partners.
If no provisions are made in an agreement, a general partnership allocates profits and losses based on the
A. Value of actual contributions made by each partner.
B. Number of partners.
C. Number of hours each partner worked in the partnership during the year.
D. Number of years each partner belonged to the partnership.
D. The partners will share in losses according to the allocation of profits specified in the partnership agreement.
Berry, Drake, and Flanigan are partners in a general partnership. The partners made capital contributions as follows: Berry, $150,000; Drake, $100,000; and Flanigan, $50,000. Drake made a loan of $50,000 to the partnership. The partnership agreement specifies that Flanigan will receive a 50% share of profits and that Drake and Berry each will receive a 25% share of profits. Under the Revised Uniform Partnership Act and in the absence of any partnership agreement to the contrary, which of the following statements is correct regarding the sharing of losses?
A. The partners will share equally in any partnership losses.
B. The partners will share in losses on a pro rata basis according to the capital contributions.
C. The partners will share in losses on a pro rata basis according to the capital contributions and loans made to the partnership.
D. The partners will share in losses according to the allocation of profits specified in the partnership agreement.
D. $100,000
The partnership agreement for Owen Associates, a general partnership, provided that profits be paid to the partners in the ratio of their financial contribution to the partnership. Moore contributed $10,000, Noon contributed $30,000, and Kale contributed $50,000. For the year ended December 31, Owen had losses of $180,000. What amount of the losses should be allocated to Kale?
A. $20,000
B. $60,000
C. $90,000
D. $100,000
D. The assignment transfers the assignor’s interest in partnership profits and losses and the right to distributions.
Which of the following statements best describes the effect of the assignment of an interest in a general partnership?
A. The assignee becomes a partner.
B. The assignee is responsible for a proportionate share of past and future partnership debts.
C. The assignment automatically dissolves the partnership.
D. The assignment transfers the assignor’s interest in partnership profits and losses and the right to distributions.
B. Has the right to participate in DSJ’s management.
Laura Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell her interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark’s withdrawal and Ward’s admission, Ward
A. Acquired only the right to receive Lark’s share of DSJ profits.
B. Has the right to participate in DSJ’s management.
C. Is personally liable for partnership liabilities arising before and after being admitted as a partner.
D. Must contribute cash or property to DSJ to be admitted with full partnership rights.
C. No Yes
Unless the partnership agreement prohibits it, a partner in a general partnership may validly assign rights to
Partnership Partnership
Property

Distributions

A. Yes Yes

B. Yes No

C. No Yes

D. No No

C. No Yes
The partners of College Assoc., a general partnership, decided to dissolve the partnership and agreed that none of the partners would continue to use the partnership name. Which of the following events will occur on dissolution of the partnership?
Each Partner’s Each Partner’s
Existing Liability Apparent
Would Be Authority Would
Discharged

Continue

A. Yes Yes

B. Yes No

C. No Yes

D. No No

A. Park may dissociate from the partnership at any time.
Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership or its purposes. Which of the following statements is true?
A. Park may dissociate from the partnership at any time.
B. Unless Graham consents to a dissolution, Park must apply to a court and obtain a decree ordering the dissolution.
C. Park may dissolve the partnership by any reasonable means.
D. Park may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors.
D. Wind’s withdrawal causes dissociation from the partnership despite being in violation of the partnership agreement.
Wind, who has been a partner in the PLW general partnership for 4 years, decides to withdraw from the partnership despite a written partnership agreement that states, “No partner may withdraw for a period of 5 years.” Under the Revised Uniform Partnership Act (RUPA), what is the result of Wind’s withdrawal?
A. Wind’s withdrawal causes a dissolution of the partnership by operation of law.
B. Wind’s withdrawal has no bearing on the continued operation of the partnership by the remaining partners.
C. Wind’s withdrawal is not effective until Wind obtains a court-ordered decree of dissolution.
D. Wind’s withdrawal causes dissociation from the partnership despite being in violation of the partnership agreement.
B. Yes No
When the Revised Uniform Partnership Act applies and there is no general partnership agreement, which of the following events, if any, occur(s) when a partner dies?
The Deceased Partner’s
The Partner Estate Is Free From Any
Is Dissociated Partnership Liability

A. Yes Yes

B. Yes No

C. No Yes

D. No No

B. The surviving partners could continue the partnership.
A parent and children currently own and operate a farm as equal partners. Under the Revised Uniform Partnership Act, what effect would the death of the parent have on the partnership?
A. The estate of the deceased partner automatically becomes a partner.
B. The surviving partners could continue the partnership.
C. The partnership would be dissolved and wound up.
D. A partnership agreement could not have governed the continuation of the partnership.
D. No No No
Under the RUPA, unless otherwise provided in a general partnership agreement, which of the following statements is true when a partner dies?
The Deceased The Deceased
Partner’s Partner’s
Executor Estate Would The
Would Be Free Partnership
Automatically from Any Would Be
Become a Partnership Dissolved
Partner
Liabilities
Automatically

A. Yes Yes Yes

B. Yes No No

C. No Yes No

D. No No No

C. Personally have to contribute an additional $5,500.
X, Y, and Z have capital balances of $30,000, $15,000, and $5,000, respectively, in the XYZ Partnership. The general partnership agreement is silent as to the manner in which partnership losses are to be allocated but does provide that partnership profits are to be allocated as follows: 40% to X, 25% to Y, and 35% to Z. The partners have decided to dissolve and liquidate the partnership. After paying all creditors, the amount available for distribution will be $20,000. X, Y, and Z are individually solvent. Z will
A. Receive $7,000.
B. Receive $12,000.
C. Personally have to contribute an additional $5,500.
D. Personally have to contribute an additional $5,000.
C. $37,000
D, E, F, and G formed a general partnership. Their written partnership agreement provides that the profits will be divided so that D will receive 40%; E, 30%; F, 20%; and G, 10%. There is no provision for allocating losses. At the end of its first year, the partnership has losses of $200,000. Before allocating losses, the partners’ capital account balances are D, $120,000; E, $100,000; F, $75,000; and G, $11,000. G refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. After losses are allocated to the partners’ capital accounts and all liabilities are paid, the partnership’s sole asset is $106,000 in cash. How much will E receive on dissolution of the partnership?
A. $29,500
B. $35,333
C. $37,000
D. $40,000
D. A partnership at will.
What term is used to describe a partnership without a specified duration?
A. A perpetual partnership.
B. A partnership by estoppel.
C. An indefinite partnership.
D. A partnership at will.
A. $25,200
Smith and James were partners in S and J Partnership. The partnership agreement stated that all profits and losses were allocated 60% to Smith and 40% to James. The partners decided to terminate and wind up the partnership. The following was the balance sheet for S and J on the day of the windup:
Cash $40,000
Accounts receivable 12,000
Property and equipment 38,000
Total assets $90,000
Accounts payable $24,000
Smith, capital 30,000
James, capital 36,000
Total liabilities and capital $90,000

Of the total accounts receivable, $10,000 was collected, and the remainder was written off as bad debt. All liabilities of S and J were paid by the partnership. The property and equipment are sold for $32,000. Under the Revised Uniform Partnership Act, what amount of cash was distributed to Smith?
A. $25,200
B. $26,000
C. $30,000
D. $34,800

B. A general partnership.
What business entity can be voluntarily dissolved and terminated without filing a dissolution document with the state of organization?
A. A corporation.
B. A general partnership.
C. A limited liability partnership.
D. A limited partnership.
C. Equally among the partners.
Which of the following statements is true regarding the division of profits in a general partnership when the written partnership agreement only provides that losses be divided equally among the partners? Profits are to be divided
A. Based on the partners’ ratio of contribution to the partnership.
B. Based on the partners’ participation in day-to-day management.
C. Equally among the partners.
D. Proportionately among the partners.
D. Win, because Locke had apparent authority to bind the partnership.
Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves, and Gage sought to enforce the contract. Gage will
A. Lose, because Locke’s action was not authorized by the partnership agreement.
B. Lose, because Locke was not an agent of the partnership.
C. Win, because Locke had express authority to bind the partnership.
D. Win, because Locke had apparent authority to bind the partnership.
C. Each partner is jointly and severally liable.
Which of the following statements is true concerning liability when a partner in a general partnership commits a tort while engaged in partnership business?
A. The partner committing the tort is the only party liable.
B. The partnership is the only party liable.
C. Each partner is jointly and severally liable.
D. Each partner is liable to pay an equal share of any judgment.
B. Profits are to be divided equally among the partners.
Lewis, Clark, and Beal entered into a written agreement to form a partnership. The agreement required that the partners make the following capital contributions: Lewis, $40,000; Clark, $30,000; and Beal, $10,000. It was also agreed that, in the event the partnership experienced losses in excess of available capital, Beal would contribute additional capital to the extent of the losses. The partnership agreement was otherwise silent about division of profits and losses. Which of the following statements is true?
A. Profits are to be divided among the partners in proportion to their relative capital contributions.
B. Profits are to be divided equally among the partners.
C. Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital.
D. Beal’s obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.
D. Grey may dissociate from the partnership at any time.
Grey and Carr entered into a written partnership agreement to operate a hardware store. Their agreement was silent as to the duration of the partnership. Grey wishes to dissolve the partnership. Which of the following is true?
A. Unless Carr consents to a dissolution, Grey must apply to a court and obtain a decree ordering the dissolution.
B. Grey may dissociate from the partnership and not be liable for any pre- or post-dissociation obligations.
C. Grey may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors.
D. Grey may dissociate from the partnership at any time.
C. Has the right to participate in QVM’s management.
Amanda Blake, a partner in QVM, a general partnership, wishes to withdraw from the partnership and sell her interest to Dick Nolan. All of the other partners in QVM have agreed to admit Nolan as a partner and to hold Blake harmless for the past, present, and future liabilities of QVM. As a result of Blake’s withdrawal and Nolan’s admission to the partnership, Nolan
A. Must contribute cash or property to QVM to be admitted with the same rights as the other partners.
B. Is personally liable for partnership liabilities arising before and after being admitted as a partner.
C. Has the right to participate in QVM’s management.
D. Acquired only the right to receive Blake’s share of QVM’s profits.
B. The partnership began its existence on September 1.
Three independent sole proprietors decided to pool their resources and form a partnership. The business assets and liabilities of each were transferred to the partnership. The partnership commenced business on September 1, but the parties did not execute a formal partnership agreement until October 15. Which of the following is true?
A. The existing creditors must consent to the transfer of the individual business assets to the partnership.
B. The partnership began its existence on September 1.
C. If the partnership’s duration is indefinite, the partnership agreement must be in writing and signed.
D. In the absence of a partnership agreement specifically covering division of losses among the partners, they will be deemed to share them in accordance with their capital contributions.
C. Fine and Walters divide the net profits equally on a quarterly basis.
James Fine is doing business as Fine’s Apparels, a sole proprietorship. In the past year Fine had regularly joined with Charles Walters in the marketing of bathing suits and beach accessories. Which of the following factors is the most important in ascertaining whether Fine and Walters have created a partnership relationship?
A. A partnership agreement is not in existence.
B. Each has a separate business of his own that he operates independently.
C. Fine and Walters divide the net profits equally on a quarterly basis.
D. Fine and Walters did not intend to be partners.
B. The agreement cannot be completed within 1 year from the date of its formation.
Rivers and Lee want to form a partnership. For the partnership agreement to be enforceable, it must be in writing if
A. Rivers and Lee reside in different states.
B. The agreement cannot be completed within 1 year from the date of its formation.
C. Either Rivers or Lee is to contribute $500 or more in capital.
D. The partnership intends to buy and sell real estate.
D. Have little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance.
Many states require partnerships to file the partnership name under laws known as fictitious name statutes. These statutes
A. Require a proper filing as a condition precedent to the valid creation of a partnership.
B. Are designed primarily to provide registration for tax purposes.
C. Are designed to clarify the rights and duties of the members of the partnership.
D. Have little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance.
D. Mrs. Quick has the right to receive a settlement for her husband’s interest in the partnership.
James Quick was a partner in the Fast, Sure, and Quick Factors partnership. He subsequently died. His will left everything to his wife including a one-third interest in the land and building owned by Fast, Sure, and Quick. Which of the following statements is true?
A. Mrs. Quick is a one-third owner of Fast, Sure, and Quick’s land and building.
B. The real property in question was held by the partnership as a tenancy in common.
C. Mrs. Quick automatically becomes the partner of Fast and Sure upon her husband’s death.
D. Mrs. Quick has the right to receive a settlement for her husband’s interest in the partnership.
B. Profits are to be divided equally.
Jackie Daniels, Jess Beal, and Sid Wade agreed to form the DBW Partnership to engage in the import-export business. They had been life-long friends and had engaged in numerous business dealings with each other. It was orally agreed that Daniels would contribute $20,000, Beal $15,000 and Wade $5,000. It was also orally agreed that in the event the venture proved to be a financial disaster all losses above the amounts of capital contributed would be assumed by Daniels and that she would hold her fellow partners harmless from any additional amounts lost. The partnership was consummated with a handshake and the contribution of the agreed-upon capital by the partners. There were no other express agreements. Under these circumstances, which of the following is true?
A. Profits are to be divided in accordance with the relative capital contributions of each partner.
B. Profits are to be divided equally.
C. The partnership is a nullity because the agreement is not contained in a signed writing.
D. Profits are to be shared in accordance with the relative time each devotes to partnership business during the year.
B. In the same manner as partnership profits.
In the absence of a specific provision in a general partnership agreement, partnership losses will be allocated
A. Equally among the partners irrespective of the allocation of partnership profits.
B. In the same manner as partnership profits.
C. In proportion to the partners’ capital contributions.
D. In proportion to the partners’ capital contributions and outstanding loan balances.
B. Sell or pledge her entire partnership interest without causing a dissolution.
Billie Donovan, a partner of Monroe, Lincoln, and Washington, is considering selling or pledging all or part of her interest in the partnership. The partnership agreement is silent on the matter. Donovan may
A. Sell part but not all of her partnership interest.
B. Sell or pledge her entire partnership interest without causing a dissolution.
C. Pledge her partnership interest, but only with the consent of the other partners.
D. Sell her entire partnership interest and confer partner status upon the purchaser.
B. Not affect the assigning partner’s liability to third parties for obligations existing at the time of the assignment.
Unless otherwise provided for in the partnership agreement, the assignment of a partner’s interest in a general partnership will
A. Result in the termination of the partnership.
B. Not affect the assigning partner’s liability to third parties for obligations existing at the time of the assignment.
C. Transfer the assigning partner’s rights in specific partnership property to the assignee.
D. Transfer the assigning partner’s right to bind the partnership to contracts to the assignee.
B. Grand has the apparent authority to bind the partnership in contracts she makes with persons unaware of her retirement who have previously dealt with the partnership.
Ann Grand, a general partner, retired. The partnership held a testimonial dinner for her and invited ten of its largest customers. A week later a notice was placed in various trade journals indicating that Grand had retired and was no longer associated with the partnership in any capacity. After the appropriate public notice of Grand’s retirement, which of the following best describes her legal status?
A. The release of Grand by the remaining partners and the assumption of all past and future debts of the partnership by them via a hold-harmless clause constitutes a novation.
B. Grand has the apparent authority to bind the partnership in contracts she makes with persons unaware of her retirement who have previously dealt with the partnership.
C. Grand has no liability to past creditors upon her retirement from the partnership if they all have been informed of her withdrawal and her release from liability, and if they do not object within 60 days.
D. Grand has the legal status of a limited partner for the 3 years it takes to pay her the balance of the purchase price of her partnership interest.
C. Not affect the rights of partnership creditors to hold Fein personally liable for those liabilities of ABC existing at the time of his withdrawal.
The agreement to hold Fein harmless for all past, present, and future liabilities of ABC will
A. Prevent partnership creditors from holding Fein personally liable only as to those liabilities of ABC existing at the time of Fein’s withdrawal.
B. Prevent partnership creditors from holding Fein personally liable for the past, present, and future liabilities of ABC.
C. Not affect the rights of partnership creditors to hold Fein personally liable for those liabilities of ABC existing at the time of his withdrawal.
D. Permit Fein to recover from the other partners only amounts he has paid in excess of his proportionate share.
B. Has the right to participate in the management of ABC.
As a result of Fein’s withdrawal and Gold’s admission to the partnership, Gold
A. Is personally liable for partnership liabilities arising before and after his admission as a partner.
B. Has the right to participate in the management of ABC.
C. Acquired only the right to receive Fein’s share of the profits of ABC.
D. Must contribute cash or property to ABC to be admitted with the same rights as the other partners.
C. A personal mortgage loan obtained by one of the other partners on his/her residence to which that partner, without authority, signed the partnership name on the note.
A general partner will not be personally liable for which of the following acts or transactions?
A. The gross negligence of one of the partnership’s employees while carrying out the partnership business.
B. A contract entered into by the majority of the other partners but to which the general partner objects.
C. A personal mortgage loan obtained by one of the other partners on his/her residence to which that partner, without authority, signed the partnership name on the note.
D. A contract entered into by the partnership in which the other partners agree among themselves to hold the general partner harmless.
C. If Major Supply gave credit in reliance upon the misrepresentation by Coleman, Danforth is a partner by estoppel.
Major Supply, Inc., is seeking a judgment against Les Danforth on the basis of a representation made by Dirk Coleman, in Danforth’s presence, that they were in partnership together doing business as the D & C Trading Partnership. Major Supply received an order from Coleman on behalf of D & C and shipped $800 worth of goods to Coleman. Coleman has defaulted on payment of the bill and is insolvent. Danforth denies he is Coleman’s partner and that he has any liability for the goods. Insofar as Danforth’s liability is concerned, which of the following is true?
A. Danforth is not liable if he is not in fact Coleman’s partner.
B. Because Danforth did not make the statement about being Coleman’s partner, he is not liable.
C. If Major Supply gave credit in reliance upon the misrepresentation by Coleman, Danforth is a partner by estoppel.
D. Because the “partnership” is operating under a fictitious name (the D & C Trading Partnership), a filing is required and Major Supply’s failure to ascertain whether there was in fact such a partnership precludes it from recovering.
C. Will have the first claim to partnership property to the exclusion of the personal creditors of Green.
The partnership of Joe Baker, Art Green, and Guy Madison is insolvent. The partnership’s liabilities exceed its assets by $123,000. The liabilities include a $25,000 loan from Madison. Green is personally insolvent. His personal liabilities exceed his personal assets by $13,500. Green has filed a voluntary petition in bankruptcy. Under these circumstances, partnership creditors
A. Must proceed against the partnership and all the general partners in one lawsuit so that losses may be shared equitably among the partners.
B. Rank first in payment and all (including Madison) will share proportionately in the partnership assets to be distributed.
C. Will have the first claim to partnership property to the exclusion of the personal creditors of Green.
D. Do not have the right to share pro rata with Green’s personal creditors in Green’s personal assets.
C. Notice to a partnership at will of a partner’s express will to withdraw.
Which of the following will result in a dissolution of a partnership under the RUPA?
A. The bankruptcy of a partner as long as the partnership itself remains solvent.
B. The death of a partner as long as his/her will provides that his executor shall become a partner in his/her place.
C. Notice to a partnership at will of a partner’s express will to withdraw.
D. The assignment by a partner of his/her entire partnership interest.
B. $20,000
D, E, F, and G formed a general partnership. Their written partnership agreement provides that the profits will be divided so that D will receive 40%; E, 30%; F, 20%; and G, 10%. There is no provision for allocating losses. At the end of its first year, the partnership has losses of $200,000. Before allocating losses, the partners’ capital account balances are D, $120,000; E, $100,000; F, $75,000; and G, $11,000. G refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. What is G’s share of the partnership losses?
A. $9,000
B. $20,000
C. $39,000
D. $50,000
C. $9,000
Vick’s share of the undistributed losses will be
A. $0
B. $1,000
C. $9,000
D. $10,000
A. Downs and Vick, as a majority of the partners, would have been able to continue the partnership.
Under the RUPA, if Frey died before the partnership terminated,
A. Downs and Vick, as a majority of the partners, would have been able to continue the partnership.
B. The partnership would have continued even if Downs and Vick decided not to purchase Frey’s partnership interest.
C. The partnership would automatically dissolve.
D. Downs and Vick would have Frey’s interest in the partnership.
D. An association of persons engaged as co-owners in a single undertaking for profit.
A joint venture is
A. An association limited to no more than two persons in business for profit.
B. An enterprise of numerous co-owners in a nonprofit undertaking.
C. A corporate enterprise for a single undertaking of limited duration.
D. An association of persons engaged as co-owners in a single undertaking for profit.
B. A joint venturer has less apparent authority.
The most significant distinction between a general partner and a joint venturer is that
A. A joint venturer is personally liable for debts of the entity.
B. A joint venturer has less apparent authority.
C. Only a partner has a right to an accounting.
D. Neither is liable for taxes on entity profits.
D. Neither I nor II.
Which of the following statements regarding a limited partner is(are) usually true?
I. The limited partner is subject to personal liability for partnership debts.
II. The limited partner has the right to take part in the control of the partnership.
A. I and II.
B. I only.
C. II only.
D. Neither I nor II.
D. Can exist as such only if it is formed under the authority of a state statute.
Marshall formed a limited partnership for the purpose of engaging in the export-import business. Marshall obtained additional working capital from Franklin and Lee by selling them each a limited partnership interest. Under these circumstances, the limited partnership
A. Will usually be treated as a taxable entity for federal income tax purposes.
B. Will lose its status as a limited partnership if it has more than one general partner.
C. Can limit the liability of all partners.
D. Can exist as such only if it is formed under the authority of a state statute.
B. Corporations and limited partnerships must be formed pursuant to a state statute. A copy of the organizational document must be filed with the proper state agency.
Which of the following statements is true?
A. Directors owe fiduciary duties to the corporation, and limited partners owe such duties to the partnership.
B. Corporations and limited partnerships must be formed pursuant to a state statute. A copy of the organizational document must be filed with the proper state agency.
C. Shareholders may be entitled to vote on corporate matters, whereas limited partners are prohibited from voting on partnership matters.
D. Stock of a corporation may be subject to registration under federal securities laws, but limited partnership interests are automatically exempt from such requirements.
B. May have an unlimited number of partners.
A valid limited partnership
A. Cannot be treated as an “association” for federal income tax purposes.
B. May have an unlimited number of partners.
C. Is exempt from all Securities and Exchange Commission regulations.
D. Must designate in its certificate the name, address, and capital contribution of each general partner and each limited partner.
A. If Stanley permits his name to be used in connection with the business and is held out as a participant in the management of the venture, he will be liable as a general partner.
Stanley Kowalski is a well-known retired movie personality who purchased a limited partnership interest in Terrific Movie Productions upon its initial syndication. Which of the following is true?
A. If Stanley permits his name to be used in connection with the business and is held out as a participant in the management of the venture, he will be liable as a general partner.
B. The sale of these limited partnership interests is not subject to SEC registration.
C. This limited partnership may be formed with the same informality as a general partnership.
D. The general partners are prohibited from also owning limited partnership interests.
C. A general partner may be a secured creditor of the limited partnership.
Which of the following statements is true with respect to a limited partnership?
A. A limited partner may not be an unsecured creditor of the limited partnership.
B. A general partner may not also be a limited partner at the same time.
C. A general partner may be a secured creditor of the limited partnership.
D. A limited partnership can be formed with limited liability for all partners.
D. To be elected as a general partner by a majority vote of the limited partners in number and amount.
Which of the following rights would a limited partner not be entitled to assert?
A. To have a formal accounting of partnership affairs whenever the circumstances render it just and reasonable.
B. To have the same rights as a general partner to a dissolution and winding up of the partnership.
C. To have reasonable access to the partnership books and to inspect and copy them.
D. To be elected as a general partner by a majority vote of the limited partners in number and amount.
A. Results in the limited partner having an intangible personal property right.
A limited partner’s capital contribution to the limited partnership
A. Results in the limited partner having an intangible personal property right.
B. Can be withdrawn at the limited partner’s option at any time prior to the filing of a petition in bankruptcy against the limited partnership.
C. Can only consist of cash or marketable securities.
D. Must be indicated in the limited partnership’s certificate.
A. May not withdraw his/her capital contribution absent sufficient limited-partnership property to pay all general creditors.
A limited partner
A. May not withdraw his/her capital contribution absent sufficient limited-partnership property to pay all general creditors.
B. Must not own limited-partnership interests in other competing limited partnerships.
C. Is automatically an agent for the partnership with apparent authority to bind the limited partnership in contract.
D. Has no liability to creditors even if (s)he takes part in the control of the business as long as (s)he is held out as being a limited partner.
A. A limited partner has the right to obtain from the general partner(s) financial information and tax returns of the limited partnership.
In general, which of the following statements is true with respect to a limited partnership?
A. A limited partner has the right to obtain from the general partner(s) financial information and tax returns of the limited partnership.
B. A limited partnership can be formed with limited liability for all partners.
C. A limited partner may not also be a general partner at the same time.
D. A limited partner may hire employees on behalf of the partnership.
B. Limited partners may vote to remove a general partner without losing their status as limited partners.
The XYZ Limited Partnership has two general partners: Smith and Jones. A provision in the partnership agreement allows the removal of a general partner by a majority vote of the limited partners. The limited partners vote to remove Jones as a general partner. Which of the following statements is true?
A. The limited partners are now liable to third parties for partnership obligations.
B. Limited partners may vote to remove a general partner without losing their status as limited partners.
C. By voting to remove a general partner, the limited partners are presumed to exercise control of the business.
D. Limited partners may participate in management decisions without limitation if this right is provided for in the limited partnership agreement.
D. Goldsmith becomes in effect an assignee of Wall’s partnership interest.
Ms. Wall is a limited partner of the Amalgamated Limited Partnership. She is insolvent, and her debts exceed her assets by $28,000. Goldsmith, one of Wall’s largest creditors, is resorting to legal process to obtain the payment of Wall’s debt to him. Goldsmith has obtained a charging order against Wall’s limited partnership interest for the unsatisfied amount of the debt. As a result of Goldsmith’s action, which of the following will happen?
A. The partnership will be dissolved.
B. Wall’s partnership interest must be redeemed with partnership property.
C. Goldsmith automatically becomes a substituted limited partner.
D. Goldsmith becomes in effect an assignee of Wall’s partnership interest.
C. A general partner retires and all the remaining general partners do not consent to continue.
Absent any contrary provisions in the agreement, under which of the following circumstances will a limited partnership be dissolved?
A. A limited partner dies and his/her estate is insolvent.
B. A personal creditor of a general partner obtains a judgment against the general partner’s interest in the limited partnership.
C. A general partner retires and all the remaining general partners do not consent to continue.
D. A limited partner assigns his/her partnership interest to an outsider and the purchaser becomes a substituted limited partner.
B. Grey’s personal representative will have all the rights of a limited partner for the purpose of settling the estate.
Unless otherwise provided in the certificate of limited partnership, which of the following is true if Grey, one of the limited partners, dies?
A. Grey’s personal representative will automatically become a substituted limited partner.
B. Grey’s personal representative will have all the rights of a limited partner for the purpose of settling the estate.
C. The partnership will automatically be dissolved.
D. Grey’s estate will be free from any liabilities incurred by Grey as a limited partner.
D. Withdrawal of the only general partner.
Under the Revised Uniform Limited Partnership Act and in the absence of a contrary agreement by the partners, which of the following events is most likely to dissolve a limited partnership?
A. A majority vote in favor by the partners.
B. A two-thirds vote in favor by the partners.
C. A withdrawal of a majority of the limited partners.
D. Withdrawal of the only general partner.
C. Limited and general partners in respect to their undistributed profits.
Wichita Properties is a limited partnership created in accordance with the provisions of the Uniform Limited Partnership Act. The partners have voted to dissolve and settle the partnership’s accounts. Which of the following will be the last to be paid?
A. General partners for unpaid distributions.
B. Limited partners in respect to capital.
C. Limited and general partners in respect to their undistributed profits.
D. General partners in respect to capital.
C. I, II, and III.
Which of the following is necessary content of the limited partnership certificate?
I. The name of the limited partnership
II. The address of its office
III. The latest date upon which the limited partnership is to dissolve
A. I and II.
B. I and III.
C. I, II, and III.
D. None of the answers are correct.
D. The limited partnership is a pass-through (nontaxable) entity.
Which of the following is true regarding the taxation of a limited partnership?
A. The limited partnership need not file a return.
B. Double taxation is not avoidable through a limited partnership.
C. The IRS is not concerned whether a limited partnership is in substance a corporation.
D. The limited partnership is a pass-through (nontaxable) entity.
A. All partners agree.
The assignee of a partnership interest (limited or general) may become a limited partner if
A. All partners agree.
B. The limited partner becomes subject to a charging order.
C. The assignee-limited partner becomes subject to all liabilities of the assignor.
D. All of the answers are correct.
B. A limited partner participates in control of the partnership by serving as its agent.
In which of the following situations will a limited partner most likely lose limited liability status?
A. A limited partner serves as an employee or contractor for the limited partnership.
B. A limited partner participates in control of the partnership by serving as its agent.
C. A limited partner acts as a consultant to a general partner.
D. A limited partner attends a partners’ meeting.
A. Creation and continuation require compliance with statutory provisions.
What is a possible disadvantage of forming an LLP as opposed to remaining a general partnership?
A. Creation and continuation require compliance with statutory provisions.
B. Partners are subject to a broad personal liability shield.
C. LLPs are pass-through entities.
D. Termination of an LLP involves the same process as in a general partnership.
D. All the partners other than the negligent partner and his/her supervisor.
Which of the following partners of a limited liability partnership (LLP) may avoid personal liability when a partner commits a negligent act?
A. All the partners.
B. The supervisor of the negligent partner.
C. All the partners other than the negligent partner.
D. All the partners other than the negligent partner and his/her supervisor.
C. The partner who personally incurs an obligation in the conduct of partnership business.
Under the RUPA, in which of the following situations will a partner in an LLP most likely be personally liable?
A. The managing partner in the Texas office when individuals in the New York office engaged in fraudulent activities.
B. The managing partner in the New York office when an employee in the office who was supervised by another partner engaged in fraudulent activities.
C. The partner who personally incurs an obligation in the conduct of partnership business.
D. A nonmanaging partner in an office where another partner committed negligence.
B. Is typically adopted by providers of professional services.
A limited liability partnership (LLP)
A. Starts life as a corporation.
B. Is typically adopted by providers of professional services.
C. Is ordinarily treated as a legal entity to the same extent as a corporation.
D. Offers a liability shield only for professional malpractice.
D. Limited liability partnership.
Jones, Smith, and Bay wanted to form a company called JSB Co. but were unsure about which type of entity would be most beneficial based on their concerns. They all desired the opportunity to make tax-free contributions and distributions when appropriate. They wanted earnings to accumulate tax-free. They did not want to be subject to personal holding company tax and did not want double taxation of income. Bay was going to be the only individual giving management advice to the company and wanted to be a member of JSB through his current company, Channel, Inc. Which of the following would be the most appropriate business structure to meet all of their concerns?
A. Proprietorship.
B. S corporation.
C. C corporation.
D. Limited liability partnership.
C. Partners are subject to a broad personal liability shield.
Which of the following is an advantage of forming an LLP instead of a general partnership?
A. The creation and continuation of an LLP requires compliance with statutory provisions.
B. LLPs are pass-through entities.
C. Partners are subject to a broad personal liability shield.
D. The termination procedures of an LLP.
D. Liability.
General partnerships and LLPs vary in terms of:
A. Termination.
B. Capitalization.
C. Taxation.
D. Liability.
A. The name of the partnership and the names of the general partners.
The certificate of limited partnership filed in the public records must contain
A. The name of the partnership and the names of the general partners.
B. The general character of the business.
C. The contribution of each partner (general and limited).
D. The amount of each limited partner’s liability.
B. Cannot admit additional limited partners absent unanimous written consent or ratification by the limited partners.
Fox, Harrison, and Dodge are the general partners of a limited partnership. If the limited partnership certificate is silent on these matters, the general partners
A. Can admit additional general partners without consent of the limited partners if the general partners vote unanimously to do so.
B. Cannot admit additional limited partners absent unanimous written consent or ratification by the limited partners.
C. Can admit additional limited partners if a majority of the general and limited partners consent to do so.
D. Cannot admit any general or limited partners without amending the partnership agreement.
A. Is liable for obligations of the partnership to the extent of his/her capital contribution.
A limited partner
A. Is liable for obligations of the partnership to the extent of his/her capital contribution.
B. Has voting rights.
C. May freely transfer his/her interest in the partnership and substitute the transferee as a limited partner.
D. May not demand the return of his/her contribution.
A. All partners must unanimously consent to admitting additional limited partners.
Armer, Ltd. is a limited partnership that invests in pork bellies. To obtain additional capital, the general partners want to admit additional limited partners. Some of the existing limited partners are unhappy with their investments and want to sell their interests. The certificate and agreement of limited partnership provide no guidelines. Which of the following statements is true?
A. All partners must unanimously consent to admitting additional limited partners.
B. If the limited partners may assign their interests, the general partners may admit additional limited partners without the consent of the existing limited partners.
C. An assignee of a limited partnership interest becomes a limited partner.
D. A limited partner must give the general partners 10 days’ notice prior to assigning his/her interest.
B. The occurrence of the time specified in the partners’ agreement.
Which of the following will cause the dissolution of a limited partnership?
A. The death of a limited partner whose estate is insolvent.
B. The occurrence of the time specified in the partners’ agreement.
C. The investment of a limited partner’s capital contribution in a competing limited partnership.
D. Sale of a limited partnership interest.
D. Must include her share of partnership profits in her taxable income even if she withdraws nothing.
Bonanza Real Estate Ventures was formed under a state’s version of the Revised Uniform Limited Partnership Act. It has three general partners and 1,100 limited partners. The limited partnership interests were offered to the general public at $5,000 per interest. Julie Kay purchased a limited-partnership interest. As such, she
A. Cannot assign her limited-partnership interest to another person without the consent of the general partners.
B. Is entitled to interest on her capital contribution.
C. Is a fiduciary vis-a-vis the limited partnership and its partners.
D. Must include her share of partnership profits in her taxable income even if she withdraws nothing.
A. All limited partners’ capital contributions must be paid in cash.
Dowling is a promoter and has decided to use a limited partnership for conducting a securities investment venture. Which of the following is unnecessary to form the partnership?
A. All limited partners’ capital contributions must be paid in cash.
B. A state statute must recognize limited partnerships.
C. A limited partnership certificate must be signed by the participants and filed in the proper office in the state.
D. The partnership must have one or more general partners and one or more limited partners.
C. A person may own a limited partnership interest in the same partnership in which (s)he is a general partner.
Unless otherwise provided in the limited partnership agreement, which of the following statements is true?
A. A general partner’s capital contribution may not consist of services rendered to the partnership.
B. Upon the death of a limited partner the partnership will be dissolved.
C. A person may own a limited partnership interest in the same partnership in which (s)he is a general partner.
D. Upon the assignment of a limited partner’s interest, the assignee will become a substituted limited partner if the consent of two-thirds of all partners is obtained.
B. Basically the same with respect to both types of partners.
The rights of the general and limited partners regarding the assignment of their partnership interests are
A. Determined according to the common law of partnerships as articulated by the courts.
B. Basically the same with respect to both types of partners.
C. Basically the same with the exception that the limited partner must give 10 days’ notice prior to the assignment.
D. Different in that the assignee of a limited partnership interest automatically becomes a substituted limited partner.
A. Fisk and all outside general creditors will receive repayment of their loans prior to any other distributions.
Donald Fisk is a limited partner of Sparta Oil Development. He paid $10,000 for his limited-partnership interest. In addition, he lent Sparta $7,500. Sparta failed to find oil and is in financial difficulty. Upon dissolution and liquidation,
A. Fisk and all outside general creditors will receive repayment of their loans prior to any other distributions.
B. Fisk will receive repayment, along with the other limited partners, in respect to his capital and loan after all other creditors have been satisfied.
C. The last distribution, if anything remains, is to the general partners in respect to capital.
D. If Fisk holds partnership property as collateral, he may resort to it to satisfy any deficiency if other partnership assets are insufficient to meet creditors’ claims.
C. Chuck’s liability for partnership debts is limited to $250,000.
Chuck Borris invested $250,000 for a limited partnership share in Kong-Foo, a company that distributes antique furniture. Which of the following statements is correct?
A. Chuck has unlimited personal liability for the debts of the partnership.
B. Chuck may participate in management of Kong-Foo without losing his limited liability.
C. Chuck’s liability for partnership debts is limited to $250,000.
D. Chuck is not liable for any amount owed to creditors if he does not contribute services to the partnership.
A. Voting for removal of the general partner.
Swing, Ltd., a limited partnership that supplies sheet music to educational institutions, did not have sufficient profits to make any distributions due to lack of public interest in musical instruments. Wally Worried, a limited partner, is concerned. Which of the following may Wally participate in without jeopardizing his limited partner status?
A. Voting for removal of the general partner.
B. Participating in major business decisions.
C. Allowing his name to be used in connection with the business.
D. Allowing his name to be used in the name of the limited partnership.
D. All of the answers are correct.
Which of the following is a legal entity separate from its owners?
A. Limited partnership.
B. LLP.
C. LLC.
D. All of the answers are correct.
B. Equally.
In the absence of a member agreement, how are profits and losses shared by members of an LLC formed under the Uniform Limited Liability Company Act (ULLCA)?
A. In proportion to their capital contributions.
B. Equally.
C. In proportion to their voting power.
D. In proportion to their partnership interests.
B. Members.
The owners of a limited liability company are known as which of the following?
A. Partners.
B. Members.
C. Stockholders.
D. Shareholders.
C. Member of a limited liability company.
Which of the following parties generally has the most management rights?
A. Minority shareholder in a corporation listed on a national stock exchange.
B. Limited partner in a general partnership.
C. Member of a limited liability company.
D. Limited partner in a limited partnership.
C. Dissociation by any member.
Which of the following is least likely to dissolve an LLC?
A. Expiration of a certain time period specified in the operating agreement.
B. Judicial determination of the equitability of liquidation.
C. Dissociation by any member.
D. Death of a member as outlined in the articles of organization.
D. Single-member LLCs must be taxed as corporations.
Which of the following is a false statement about the taxation of an LLC?
A. Members may elect to be taxed as partners.
B. Members may elect to be taxed as a corporation.
C. It may be advantageous for an LLC to be taxed as a corporation.
D. Single-member LLCs must be taxed as corporations.
B. May have a tax status similar to that of a partnership.
A relatively new form of business organization is the limited liability company (LLC). In accordance with many state statutes, an LLC
A. Must be for a specified term.
B. May have a tax status similar to that of a partnership.
C. Permits limited liability provided the members do not participate in management.
D. Is similar to a partnership because no formalities are needed for its creation.
C. It may address matters such as profit sharing, voting rights, and dissolution.
Which of the following is true concerning an LLC’s operating agreement?
A. It is legally required.
B. It must be in writing.
C. It may address matters such as profit sharing, voting rights, and dissolution.
D. All of the answers are correct.
C. I and II.
An LLC may be formed when
I. One person files articles of organization with the appropriate secretary of state.
II. Two or more persons file articles of organization with the appropriate secretary of state.
A. I only.
B. II only.
C. I and II.
D. Neither I nor II.
B. Include all names of future members.
An LLC’s articles of organization need not
A. State the LLC’s name.
B. Include all names of future members.
C. Provide for existence for a specified term or at-will.
D. Indicate whether management will be by owners or managers.
B. I and III only.
An LLC must maintain which of the following contacts with the state where it was formed?
I. An agent for service of process
II. An attorney for representation in lawsuits
III. An office
A. I only.
B. I and III only.
C. II and III only.
D. I, II, and III.
A. Joint ventures.
The limited liability company combines some aspects of all of the following organizations excluding
A. Joint ventures.
B. Corporations.
C. Partnerships.
D. Limited partnerships.
D. Tax status as a pass-through entity.
The advantage of a limited liability company is
A. Informal organizational procedures.
B. Unlimited liability only for members that actively participate in management.
C. Each member’s receipt of an equal share of profits.
D. Tax status as a pass-through entity.
C. It is designed to forestall and resolve disputes among the owners.
Which of the following statements is correct regarding a limited liability company’s operating agreement?
A. It must be filed with a central state agency.
B. It must be in writing.
C. It is designed to forestall and resolve disputes among the owners.
D. It is necessary for a limited liability company to exist.

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