MGT 12A - Chapter 14 Flashcards

Questions and Answers

An LLC is a limited liability ______.

company

LLCs and LLPs limit the personal ______ of business principals, while avoiding the double taxation found in corporations.

liabilities

The LLC is a hybrid business entity that shares characteristics of both ______ and corporations.

partnership

The ULLCA is the model statute used by most ______ to govern LLCs.

states Signup and view all the answers

State laws include provisions for both the procedural formation and the internal ______ rules for a limited liability company in case the owners do not set their own standards of operation.

default Signup and view all the answers

The abbreviation LLP denotes a limited liability ______.

partnership Signup and view all the answers

A limited liability ______ (LLP) provides general partners protection from LLP debts and other liabilities.

partnership Signup and view all the answers

LLCs and LLPs were created to allow business principals to avoid double ______ while still providing limited liability.

taxation Signup and view all the answers

What does a limited liability company (LLC) offer business owners?

Liability protection of a corporation and the taxation of a partnership. Signup and view all the answers

Articles or certificates of organization are filed with the state to create a(n) ______.

LLC Signup and view all the answers

What is the uniform statute used by most states as the model for their governance of LLCs?

ULLCA (The Uniform Limited Liability Company Act) Signup and view all the answers

State laws that govern LLCs include provisions for both initial ______ of the LLCs and the default rules in case the owners do not set their own standards of operation.

formation Signup and view all the answers

Most states will typically require basic information to create an LLC, including which of the following? (Check all that apply.)

Names of the members Signup and view all the answers

What form provides liability protection for partners in a general partnership?

Limited liability partnership (LLP) Signup and view all the answers

An LLC is governed through its ______.

operating agreement Signup and view all the answers

A limited liability company (LLC) offers the limited of principal owners of a corporation, and the pass-through of a partnership.

liability; taxation Signup and view all the answers

An LLC is created by filing articles of ______ with the state.

organization Signup and view all the answers

If an LLC has no operating agreement, it will be governed by the default rules set out by the state's LLC ______.

statutes Signup and view all the answers

The model statute used by most states to enact legislation to govern LLCs is the ULLCA or ______ Limited Liability Company Act.

Uniform Signup and view all the answers

What is generally included in an LLC's operating agreement? (Check all that apply.)

Management responsibilities Signup and view all the answers

The RULLCA sets forth ______ nonwaivable statutory provisions related to the liability of the LLC and its members.

17 Signup and view all the answers

Management responsibilities and plans for dissolution are included in an LLC's ______.

operating agreement Signup and view all the answers

Which of the following is (are) true about the RULLCA?

It identifies matters that can't be waived by the operating agreement related to LLC and member liability Signup and view all the answers

How will Big Bank protect itself in case the LLC defaults on the loan?

Big Bank will require LaTonya to sign a personal guarantee, making her personally responsible if her company defaults on the loan. Signup and view all the answers

A limited liability company (LLC) offers its principals the same amount of liability protection afforded to principals of a(n) ______.

corporation Signup and view all the answers

How does the situation impact Karen and Mark if their LLC cannot pay its bills?

They will not have to pay the company's debts from their own money. Signup and view all the answers

If LLC members have engaged in fraud or other bad conduct, a court may rely on ______ as the rationale to require members to compensate damaged parties.

fairness Signup and view all the answers

An ______ distribution is a distribution of money made when the LLC is insolvent.

improper Signup and view all the answers

Which of the following are required to meet the RULLCA's definition of being insolvent?

The company's total assets are less than the sum of its total liabilities and the company cannot pay its debts as they become due in the ordinary course of business. Signup and view all the answers

What do lenders know about LLC members regarding personal liability?

LLC members are protected from personal liability for the company's debts. Signup and view all the answers

LLCs may be taxed as: (Check all that apply.)

Corporations Signup and view all the answers

A court may require LLC members to personally meet the obligations of the business in the interests of ______.

fairness Signup and view all the answers

If a state's LLP protections for LLP partners apply only to liability arising from another partner's negligence, each partner will still be personally liable for the business's debts and breach of ______.

contracts Signup and view all the answers

What do some states require LLPs to carry so that injured third parties can still recover legitimate damages?

Liability insurance Signup and view all the answers

The liability shield of an LLP protects a partner from tort liability resulting from the actions of her partners; however, the shield may not apply if the liability results from a ______ obligation related to LLP operations.

contract Signup and view all the answers

Partners in a limited liability partnership (LLP) may establish rules to run the business in the ______.

partnership agreement Signup and view all the answers

If the partners in an LLP wish to be managed by a governing board or executive committee, where would this be provided for?

In the partnership agreement Signup and view all the answers

What can be concluded about Alex's personal assets if he engaged in tortious conduct?

Mira's and Petra's personal assets will be protected, but not Alex's personal assets. Signup and view all the answers

A limited liability company's (LLC's) operating agreement will typically contain provisions for all of the following, except:

Assigning personal liability to the members for business debts Signup and view all the answers

A limited liability company (LLC) is formed when a general partnership files a statement of qualification with the appropriate public official.

False Signup and view all the answers

In a limited liability company (LLC), owners are known as 'agents'.

False Signup and view all the answers

Which of the following statements accurately differentiates between the management of a limited liability company (LLC) and a limited liability partnership (LLP)?

An LLC may be member-managed or manager-managed; an LLP is managed by managing partners or an executive committee. Signup and view all the answers

Which of the following is NOT included in the revised limited liability company (LLC) statute, the RULLCA?

A mandatory structure for the LLC's management. Signup and view all the answers

All income or losses from an LLP are reported on the partners' individual tax returns.

True Signup and view all the answers

One of the primary weaknesses of a limited liability company (LLC) is that members do not have flexibility to determine the rights and responsibilities of each member.

False Signup and view all the answers

Study Notes

Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs)

An LLC is a limited liability company that combines the liability protection of a corporation with the tax benefits of a partnership.
LLCs and LLPs limit the personal liabilities of business principals and avoid double taxation typical of corporations.
The Uniform Limited Liability Company Act (ULLCA) is the primary model statute for governing LLCs across most states.
State laws provide procedural formation and default internal rules for LLCs if owners do not establish their own regulations.

Formation and Governance

Articles or certificates of organization must be filed with the state to establish an LLC.
Essential information for creating an LLC includes names of members, principal place of business, and the name of the business.
An LLC is governed by an operating agreement which outlines management responsibilities, dissolution provisions, and buy-out processes.

Rights and Liabilities

Both LLC and LLP members have limited liability, protecting their personal assets from business debts unless fraud or misconduct occurs.
Owners may need to sign personal guarantees when seeking loans, providing additional protection to lenders.
An improper distribution from an LLC occurs when funds are distributed while the company is insolvent.

Taxation and Capitalization

LLCs can be taxed as pass-through entities, meaning profits and losses are reported on members' personal tax returns, or as corporations.
Capital for LLCs is typically obtained through selling membership interests or through loans from commercial and private lenders.

Management Structure

LLCs can be either member-managed or manager-managed, allowing flexibility in business operations based on the interests and expertise of members.
A partnership agreement in an LLP specifies governance structure, management rules, and procedures for capital contributions.

Dissolution and Withdrawal

Dissolution of an LLC occurs under specific conditions, including majority member votes, indicated events in the operating agreement, or financial insolvency.
Operating agreements typically include provisions for the dissociation of members, outlining withdrawal terms and management transition processes.

Legal Considerations

RULLCA emphasizes nonwaivable provisions related to LLC liability, ensuring members cannot contract away their legal obligations.
LLPs have varied protections against personal liability depending on state laws, particularly concerning liability from another partner's negligence.

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Test your knowledge with these flashcards on Chapter 14 of MGT 12A. This chapter focuses on Limited Liability Companies (LLCs) and their characteristics compared to other business entities. Review key terms and definitions to enhance your understanding of business law concepts.

MGT 12A - Chapter 14 Flashcards

Questions and Answers

An LLC is a limited liability ______.

LLCs and LLPs limit the personal ______ of business principals, while avoiding the double taxation found in corporations.

The LLC is a hybrid business entity that shares characteristics of both ______ and corporations.

The ULLCA is the model statute used by most ______ to govern LLCs.

State laws include provisions for both the procedural formation and the internal ______ rules for a limited liability company in case the owners do not set their own standards of operation.

The abbreviation LLP denotes a limited liability ______.

A limited liability ______ (LLP) provides general partners protection from LLP debts and other liabilities.

LLCs and LLPs were created to allow business principals to avoid double ______ while still providing limited liability.

What does a limited liability company (LLC) offer business owners?

Articles or certificates of organization are filed with the state to create a(n) ______.

What is the uniform statute used by most states as the model for their governance of LLCs?

State laws that govern LLCs include provisions for both initial ______ of the LLCs and the default rules in case the owners do not set their own standards of operation.

Most states will typically require basic information to create an LLC, including which of the following? (Check all that apply.)

What form provides liability protection for partners in a general partnership?

An LLC is governed through its ______.

A limited liability company (LLC) offers the limited ______ of principal owners of a corporation, and the pass-through ______ of a partnership.

An LLC is created by filing articles of ______ with the state.

If an LLC has no operating agreement, it will be governed by the default rules set out by the state's LLC ______.

The model statute used by most states to enact legislation to govern LLCs is the ULLCA or ______ Limited Liability Company Act.

What is generally included in an LLC's operating agreement? (Check all that apply.)

The RULLCA sets forth ______ nonwaivable statutory provisions related to the liability of the LLC and its members.

Management responsibilities and plans for dissolution are included in an LLC's ______.

Which of the following is (are) true about the RULLCA?

How will Big Bank protect itself in case the LLC defaults on the loan?

A limited liability company (LLC) offers its principals the same amount of liability protection afforded to principals of a(n) ______.

How does the situation impact Karen and Mark if their LLC cannot pay its bills?

If LLC members have engaged in fraud or other bad conduct, a court may rely on ______ as the rationale to require members to compensate damaged parties.

An ______ distribution is a distribution of money made when the LLC is insolvent.

Which of the following are required to meet the RULLCA's definition of being insolvent?

What do lenders know about LLC members regarding personal liability?

LLCs may be taxed as: (Check all that apply.)

A court may require LLC members to personally meet the obligations of the business in the interests of ______.

If a state's LLP protections for LLP partners apply only to liability arising from another partner's negligence, each partner will still be personally liable for the business's debts and breach of ______.

What do some states require LLPs to carry so that injured third parties can still recover legitimate damages?

The liability shield of an LLP protects a partner from tort liability resulting from the actions of her partners; however, the shield may not apply if the liability results from a ______ obligation related to LLP operations.

Partners in a limited liability partnership (LLP) may establish rules to run the business in the ______.

If the partners in an LLP wish to be managed by a governing board or executive committee, where would this be provided for?

What can be concluded about Alex's personal assets if he engaged in tortious conduct?

A limited liability company's (LLC's) operating agreement will typically contain provisions for all of the following, except:

A limited liability company (LLC) is formed when a general partnership files a statement of qualification with the appropriate public official.

In a limited liability company (LLC), owners are known as 'agents'.

Which of the following statements accurately differentiates between the management of a limited liability company (LLC) and a limited liability partnership (LLP)?

Which of the following is NOT included in the revised limited liability company (LLC) statute, the RULLCA?

All income or losses from an LLP are reported on the partners' individual tax returns.

One of the primary weaknesses of a limited liability company (LLC) is that members do not have flexibility to determine the rights and responsibilities of each member.

Study Notes

Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs)

Formation and Governance

Rights and Liabilities

Taxation and Capitalization

Management Structure

Dissolution and Withdrawal

Legal Considerations

Studying That Suits You

Description

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A limited liability company (LLC) offers the limited of principal owners of a corporation, and the pass-through of a partnership.