Ch 17 - Limited Liability

Question 1

Limited Liability Company

Answer 1

Hybrid entity that combines limited liability of a corporation and tax advantages of partnership

Question 2

What is increasingly the entity of choice for businesses?

Answer 2

LLC

Question 3

Owners are called _____ and ownership is ____

Answer 3

Members, interest

Question 4

Piercing the corporate veil

Answer 4

Courts put aside limited liability and hold members liable (abuse and to achieve justice)

Question 5

Similarities to corporations

Answer 5

Separate legal entity from owners, can hold property separately, “foreign” designation if doing business in state other than where LLC formed

Question 6

Pre-formation contracts

Answer 6

If promoter forms one prior to formation, they may be personally liable

Question 7

Promoters

Answer 7

Owners of firm prior to charter

Question 8

Jurisdictional requirements

Answer 8

• Legal entity separate from owners

- Citizenship of LLC is citizenship of members

Question 9

Advantages:

Answer 9

• Limited liability

- Members can choose to be taxed as pass-through or double-tax

Question 10

Disadvantages

Answer 10

• Lack of uniformity with state laws

- Business operating in multiple states may not receive consistent treatment

Question 11

Fiduciary duties

Answer 11

Managers in manager-managed LLC owe duties to LLC and its members

Question 12

Effects of dissociation

Answer 12

• Member loses right to participate and right to act as an agent
• Has right to have interest bought out by other members

Question 13

Winding Up

Answer 13

Members collect and liquidate LLC assets and honor prior contracts

Question 14

Who WILL get paid first>

Answer 14

CREDITORS

Question 15

Limited Liability Partnership

Answer 15

Hybrid form of business designed mostly for professionals who normally do business as partners

Question 16

LLP allows partnership to continue as

Answer 16

Pass-through entity but limits personal liability of partners

Question 17

Liability

Answer 17

Only liable for own actions. But if partner supervised wrongful individual, then partner is liable too.

Question 18

Outside State of Formation

Answer 18

LLP formed in NC can do business elsewhere, but both states may provide different liability protection

Question 19

Limited Partnership

Answer 19

Business organizational form that limits liability of SOME owners (the limited partners)

Question 20

General partner

Answer 20

Assumes management responsibilities

HAS FULL RESPONSIBILITY FOR ALL PARTNERSHIP DEBTS

Question 21

Limited partner

Answer 21

Contributes cash or property and owns interest on firm

Not personally liable for debts UNLESS they partake in management of business

Question 22

Liabilities of LP

Answer 22

General partners personally liable to partnership’s creditors

Question 23

Franchise Price Arrangements

Answer 23

Franchises can advise franchisees on prices to set but they cannot mandate them

Question 24

An LLC is a citizen in every state its members are citizens T/F?

Answer 24

True

Question 25

All partners are liable in a partnership T/F?

Answer 25

True

Question 26

Limited partner liable to the extent of

Answer 26

Capital contribution