Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 471:

  Unless there is an agreement to the contrary, the voting power of members in a limited liability company is determined by:

  A. Each member's salary.

  B. Each member's share of profits.

  C. When the member was admitted to the company.

  D. Each member's capital contribution.

  Correct Answer: D

  Choice "d" is correct.

  Rule: Absent an agreement otherwise, all members generally participate in management, and their voting

  strength is determined in proportion to ownership interest. This is calculated by comparing each member's

  capital contribution to that of the other members.

  Choices "a", "b", and "c" are incorrect, per the above rule.

• Question 472:

  The articles of organization for a limited liability company must contain everything, except the following:

  A. The name of the entity that includes some indication it is a LLC.

  B. The name and address of the registered agent.

  C. Number of shares authorized and issued.

  D. If the company is to be manager managed, a statement to that effect.

  Correct Answer: C

  Choice "c" is correct. Limited liability companies do not issue "shares" held by shareholders like in a

  corporation. Instead, members (the owners) are said to have "interests" in the LLC.

  Choices "a", "b", and "d" are incorrect. These are all required to be included in the articles of organization.

• Question 473:

  Tim, Peter, and Rick want to form a limited liability company. What document must they file with the state?

  A. Operating Agreement.

  B. Articles of Incorporation.

  C. Bylaws.

  D. Articles of Organization.

  Correct Answer: D

  Choice "d" is correct. The Articles of Organization must be filed with the secretary of state. Choice "a" is incorrect. An operating agreement is an agreement between the members containing provisions relating to management, profit sharing, transferring interests, etC. and does not need to be filed with the state. Choices "b" and "c" are incorrect. Articles of incorporation and bylaws are documents relating to corporations, and they are not required to be filed with the state.

• Question 474:

  Eller, Fort and Owens are members of Venture Associates, LLC. Trent Corp. brought a breach of contract suit against Venture for a contract executed by Eller as an agent of the LLC. If Trent prevails, Trent will generally be able to collect the judgment from:

  A. The LLC's assets only.

  B. The personal assets of Eller, Fort and Owens jointly.

  C. Eller's personal assets only after LLC assets are exhausted.

  D. Eller's personal assets only.

  Correct Answer: A

  Choice "a" is correct.

  Rule: Members of an LLC are not personally liable for the LLC's obligations. Moreover, an agent is not

  liable on a contract the agent enters into on behalf of a disclosed principal. Here, the contract was entered

  into by Eller on behalf of Venture, an LLC, and Eller disclosed that he was acting only as an agent of

  Venture. Thus, Trent Corp. can collect from the LLC'S assets only.

  Choices "b", "c", and "d" are incorrect, per the above rule.

• Question 475:

  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.

  Correct Answer: D

  Choice "d" is correct. Absent a contrary agreement of the partners, a limited partnership can be dissolved by written consent of all the general partners, withdrawal or death of a general partner, or judicial decree. Thus, withdrawal of the only general partner would cause dissolution. (There has to be at least one general partner in a limited partnership.) Choice "a" is incorrect. It takes unanimous written consent of all general partners to dissolve the limited partnership, not majority vote. Choice "b" is incorrect. It takes unanimous written consent of all general partners to dissolve the limited partnership, not two-thirds vote. Choice "c" is incorrect. Death or withdrawal of a limited partner does not cause dissolution. Only death or withdrawal of a general partner causes dissolution.

• Question 476:

  White, Grey, and Fox formed a limited partnership. White is the general partner and Grey and Fox are the limited partners. Each agreed to contribute $200,000. Grey and Fox each contributed $200,000 in cash while White contributed $150,000 in cash and $50,000 worth of services already rendered. After two years, the partnership is insolvent. The fair market value of the assets of the partnership is $150,000 and the liabilities total $275,000. The partners have made no withdrawals. Unless otherwise provided in the certificate of limited partnership, which of the following is correct if Fox assigns her interest in the partnership to Barr and only White consents to Barr's admission as a limited partner?

  A. Barr will not become a substituted limited partner unless Grey also consents.

  B. Barr will have the right to inspect the partnership's books.

  C. The partnership will be dissolved.

  D. Barr will become a substituted limited partner because White, as general partner, consented.

  Correct Answer: A

  Choice "a" is correct. In the absence of an agreement between all partners, the assignment of a partner's interest does not make the assignee a substitute partner; it merely transfers the assignor's rights to distributions to the assignee. Choice "b" is incorrect. Absent an agreement among the partners otherwise, an assignment of an interest in a partnership is merely an assignment of the assignor's rights to receive distributions from the partnership and does not give the assignee any right to inspect the partnership's books. Choice "c" is incorrect. Absent an agreement among the partners otherwise, an assignment of an interest in a partnership is merely an assignment of the assignor's rights to receive distributions from the partnership; it does not make the assignee a new partner. Since there is no change in who is a partner, there is no dissolution. Choice "d" is incorrect. All partners must agree to make someone a partner, not just the general partner.

• Question 477:

  Harry, Betty, and Jim decide to form a hair salon business. Betty and Jim agree to equally manage the business and have agreed to accept full personal liability for obligations of the business. Harry contributes money to help them get started. Harry does not want any personal liability but does want access to the books and records and to share in the profits. They have all agreed that unanimous consent is needed to transfer their ownership interests. Assume any necessary filings have been made. What type of business entity best reflects the terms of their agreement? The three have formed:

  A. A limited partnership.

  B. A limited liability company.

  C. A general partnership.

  D. A corporation.

  Correct Answer: A

  Choice "a" is correct. A limited partnership best reflects the terms of the parties' agreement. A limited partnership has one or more general partners and one or more limited partners. The general partners are personally liable for partnership obligations and run the business (such as Betty and Jim agreed). A limited partner does not have personal liability for partnership obligations and does not take part in management; however, limited partners have a right to inspect partnership books and records relevant to their interest. Thus, a limited partnership has the attributes that Harry agreed to. Finally, all partners must unanimously consent to a transfer of an ownership interest in a limited partnership, as the parties agreed here. Thus, a limited partnership best reflects the agreement of the parties. Choice "b" is incorrect. Members of a limited liability company are not personally liable for the company's debt. (They may agree otherwise, but this is not a general attribute of a limited liability company.) Because the facts say Betty and Jim each agreed to have full personal liability, a limited liability company does not best reflect the parties' agreement. Choice "c" is incorrect. All partners are personally liable for all obligations of a general partnership. Because the facts say Harry did not accept personal liability, the agreement does not reflect a general partnership. Choice "d" is incorrect. Corporate shareholders generally are not liable for the corporation's obligations. (They may agree otherwise, but this is not a basic attribute of a corporation.) As the facts say Betty and Jim share full personal liability, the agreement does not reflect a corporation.

• Question 478:

  White, Grey, and Fox formed a limited partnership. White is the general partner and Grey and Fox are the limited partners. Each agreed to contribute $200,000. Grey and Fox each contributed $200,000 in cash while White contributed $150,000 in cash and $50,000 worth of services already rendered. After two years,

  the partnership is insolvent. The fair market value of the assets of the partnership is $150,000 and the

  liabilities total $275,000. The partners have made no withdrawals.

  If Fox is insolvent and White and Grey each has a net worth in excess of $300,000, what is White's

  maximum potential liability in the event of a dissolution of the partnership?

  A. $62,500

  B. $112,500

  C. $125,000

  D. $175,000

  Correct Answer: C

  Rule: The liability of a limited partner for partnership debts is limited to the extent of the capital, which he has contributed or has agreed to contribute. A general partner, however, is liable for all partnership debts and liabilities. Choice "c" is correct. In this case, both Grey and Fox are limited partners and, thus, their respective maximum liability for partnership debts may not exceed their contributions ($200,000 each). Because White is a general partner, however, he will be personally liable for the excess of any debt remaining after assets have been applied upon a dissolution. Therefore, White will be liable for $125,000 (the difference between the fair market value of assets ($150,000) and partnership liabilities ($275,000) at dissolution). Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 479:

  In general, which of the following statements is correct with respect to a limited partnership?

  A. A limited partner will be personally liable for partnership debts incurred in the ordinary course of the partnership's business.

  B. A limited partner is unable to participate in the management of the partnership in the same manner as general partners and still retain limited liability.

  C. A limited partner's death or incompetency will cause the partnership to dissolve.

  D. A limited partner is an agent of the partnership and has the authority to bind the partnership to contracts.

  Correct Answer: B

  Choice "b" is correct. While the general rule is that a limited partner has no liability on partnership debts except to the extent of his agreed-upon contribution, the limited partner will lose this limited liability if he takes part in control of the business, which generally means a limited partner may not manage the business on a day-to-day basis as a general partner could. Choice "a" is incorrect. Limited partners are not personally liable for partnership debts; their liability generally is limited to their contributions. Choice "c" is incorrect. Death or incapacity of a general partner will cause a dissolution, but the same is not true of a limited partner. Choice "d" is incorrect. A limited partner is more like a shareholder in a corporation than like a general partner. Limited partners are not agents of their partnerships and have no authority to bind their partnership on contracts.

• Question 480:

  In general, which of the following statements is correct 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.

  Correct Answer: A

  Choice "a" is correct. A limited partner has rights similar to those of a corporate shareholder; he must be allowed to review financial and tax information of the limited partnership. Choice "b" is incorrect. A limited partnership must have one or more general partners, whose liability is unlimited. Choice "c" is incorrect. One may be both a general and a limited partner simultaneously. Such a person has all of the rights and liabilities of both a limited partner and a general partner. Choice "d" is incorrect. A limited partner has no management authority, rather he is a passive investor, like a corporate shareholder.