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BLTS-10e Practice Quiz
CHAPTER 28:
Limited Liability Companies
and Special Business Forms
1. The key characteristics of a limited liability company (LLC) are:
a. The tax characteristics of a corporation plus the liability of shareholders.
b. The tax characteristics of a partnership plus the liability of partners.
c. The tax characteristics of a corporation plus the liability of a partnership.
d. The tax characteristics of a partnership plus the liability of a corporation.
ANS:
a. Incorrect. These are the characteristics of a corporation.
b. Incorrect. These are the characteristics of a partnership.
c. Incorrect. This would be the worst of both forms.
d. Correct. These are the characteristics of a limited liability company.
2. The owners of an LLC are called:
a. Shareholders.
b. Partners.
c. Members.
d. Solo practitioners.
ANS:
a. Incorrect. The owners of LLCs are called members.
b. Incorrect. The owners of LLCs are called members.
c. Correct. The owners of LLCs are called members.
d. Incorrect. The owners of LLCs are called members.
3. To form an LLC, which of the following must be filed with a central state agency:
a. Articles of incorporation.
b. Articles of limited partnership.
c. Articles of organization.
d. Articles of consolidation.
ANS:
a. Incorrect. To form an LLC, articles of organization must be filed with a central state agency.
b. Incorrect. To form an LLC, articles of organization must be filed with a central state agency.
c. Correct. To form an LLC, articles of organization must be filed with a central state agency.
d. Incorrect. To form an LLC, articles of organization must be filed with a central state agency.
4. When a group of members join to form an LLC, the name of their organization:
a. Must convey the purpose of their organization.
b. Must be registered with the SEC.
c. Must include the words "limited liability corporation" or the letters "LLC."
d. Must be approved by a vote of the state legislature.
ANS:
a. Incorrect. The name need not convey the purpose of the organization, it may be ambiguous, or simply the names of the members.
b. Incorrect. LLC names do not need to be registered with the SEC, but with an appropriate state office.
c. Correct. In order to alert consumers and others with whom they deal to the nature of the organization (and the limited personal liability of its owners), members of an LLC must use these words or letters in their organization’s name.
d. Incorrect. There is no requirement that the name of an LLC be approved by a vote of the state legislature.
5. A key advantage of the LLC is that:
a. The liability of members is limited to the amount of their investments.
b. The entity is treated as a partnership for liability purposes.
c. There are no formalities associated with creating an LLC.
d. State statutes limit the flexibility of LLCs.
ANS:
a. Correct. This is a key advantage of the LLC.
b. Incorrect. This is not normally true with respect to LLCs, and if it were true, it would not be an advantage of this business organizational form.
c. Incorrect. To form an LLC, articles of organization must be filed with a central state agency.
d. Incorrect. LLC members enjoy a significant degree of flexibility in determining how their businesses will be operated.
6. Another advantage of the LLC is that:
a. Investors must be accredited investors to participate.
b. Foreign investors are allowed to become LLC members.
c. Members are registered with the SEC.
d. LLC articles of organization are privately filed, protecting the identities of investors.
ANS:
a. Incorrect. Investors in LLCs do not need to be accredited.
b. Correct. LLCs allow foreign investors to participate, thus making them attractive investment vehicles.
c. Incorrect. LLC members do not register with the SEC, although the LLC must register with the appropriate state official.
d. Incorrect. The articles of organization of an LLC are filed with a public official; they are not private.
7. In an LLC, the members themselves can decide how to operate the various aspects of the business by forming:
a. The articles of incorporation.
b. An operating agreement.
c. The articles of consolidation.
d. A certificate of membership.
ANS:
a. Incorrect. An LLC does not form articles of incorporation.
b. Correct. In this agreement, the members of an LLC can themselves decide hwo to operate the various aspects of the business.
c. Incorrect. An LLC does not form articles of consolidation.
d. Incorrect. An LLC does not form a certificate of membership.
8. The major difference between a joint venture and a partnership is:
a. A partnership is composed of members and a joint venture is not.
b. Partners are taxed individually, but joint ventures are not.
c. A joint venture is essentially a one-time association, whereas a partnership is ongoing.
d. A partnership is not a legal entity, whereas a joint venture is.
ANS:
a. Incorrect. Partners are partners and not members.
b. Incorrect. Joint ventures are taxed like partnerships.
c. Correct. Joint ventures are one-time associations, whereas partnerships are ongoing.
d. Incorrect. Joint ventures are not legal entities, whereas partnerships are.
9. A group of twenty home-schooling parents in New Jersey get together and form a nonprofit membership organization whose purpose is to buy teaching materials and supplies. What type of special business form have these parents formed?
a. A syndicate.
b. A business trust.
c. A cooperative.
d. A joint-stock company.
ANS:
a. Incorrect. These parents have not joined together to finance a project but to purchase goods in quantity.
b. Incorrect. These parents have not formed a business trust, because no one has transferred cash or property in exchange for trust certificates.
c. Correct. This is cooperative. A cooperative is an association organized to provide an economic service, without a profit, to its members.
d. Incorrect. Because there is no evidence that the parents issued stock, this is not a joint-stock company.
10. A joint-stock company has many features of a corporation. Which of the following IS NOT one of the ways in which a joint-stock company is like a corporation?
a. Its shareholders have personal liability.
b. It is usually managed by directors or officers of the company.
c. Its ownership is represented by transferable shares of stock.
d. It can have perpetual existence.
ANS:
a. Correct. The shareholders of a joint-stock corporation have personal liability, as do the partners of a partnership. Corporate shareholders, on the other hand, have limited liability.
b. Incorrect. Joint-stock companies share this feature with corporations.
c. Incorrect. Joint-stock companies share this feature with corporations.
d. Incorrect. Joint-stock companies share this feature with corporations.
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