Wanda, Derek, and Mitchell formed B. Flowers, LLP three years ago. A year ago, Derek and Mitchell decided that the company was ready to open a new location and had B. Flowers take out a loan from a bank for the extra capital needed to expand. The new location has not performed well, and B. Flowers is unable to pay the remaining $50,000 owed to the bank. Is Wanda liable to the bank for the debt?
a. Yes, because she is a partner.
b. Yes, if she authorized the loan.
c. No, unless the partners have not complied with the LLP statutory filing requirements.
d. No, because partners in an LLP are never liable for the debts of the partnership.
Check My Work
GeorgGeorge and Susan open a dry cleaning business together, but do not execute any documents or perform any formalities other than obtaining a "d/b/a" certificate for their business name: "G & S Clean". One day, when George is out for lunch, Susan burns a large hole in a customer's fur coat while cleaning it. Who is liable for the cost of the coat?
a. G & S Clean only.
b. G & S Clean and Susan are personally liable. George is not liable because he did not contribute to the damage.
c. Both Susan and George are personally liable, but not G & S Clean.
d. G & S Clean is liable and both Susan and George are personally liable
Mack is the local owner of a restaurant franchise. Though the national chain is known for its hotdogs, Mack wants to sell vegetarian burritos. Must Mack get permission from the franchisor?
a. Yes, unless he is able to make it clear that the burritos are not associated with the franchise brand.
b. Yes, if the franchise agreement demands it.
c. No, but he will be liable for all losses he incurs in connection with the burritos.
d. No, unless other franchisees sell burritos.
Alan and Ivan opened a kosher delicatessen, Main Court, which failed after barely a year in business. One supplier sued for overdue bills. Alan and Ivan will be liable to the supplier if Main Court was which of the following types of organizations?
a. Close Corporation.
b. Limited Liability Partnership (LLP).
c. General Partnership.
d. S Corporation
In order to obtain limited liability, Tom and Doris properly formed a limited liability company (LLC) to operate their catering business. They sometimes deposited the proceeds from catering jobs into their personal checking accounts and if they needed to pay personal bills and were short of funds, they used the business account. If creditors of the business cannot get payment for their invoices, will a court order Tom and Doris to pay the creditors using their personal assets?
a. Yes, the court can pierce the veil of an LLC because Tom and Doris commingled assets.
b. Yes, because LLC's lose their limited liability when they fail to pay their debts.
c. No, because members of an LLC are protected from personal liability for the company's debts.
d. No, because, unlike with corporations, the veil of an LLC cannot be pierced.
Russell and Rachel have designed a new type of cell phone that they believe will revolutionize the market. They would like to start a company to produce, market, and sell the phone, and they know that they will need a considerable amount of up-front capital investment to develop a prototype and later to create inventory to sell. What is the best form of business for Russell and Rachel?
a. Sole Proprietorship
b. Limited Liability Partnership (LLP)
c. Corporation
d. Limited Liability Company (LLC)
Wilma is one of five equal members of Polar, LLC. This year, Polar generates $5 million in profits. The company reinvests $4 million into the company, leaving $1 million to be divided equally among the members. How are federal income taxes paid on Polar's profits?
a. Polar pays taxes on $5 million in profits.
b. Polar pays taxes on $1million distributed to members.
c. Wilma (and each of the members) pays taxes on their $1 million share ($5 million divided by 5) of profits.
d. Wilma (and each of the members) pays taxes on their $200,000 share ($1 million divided by 5) of profits distributed to them by Polar.
Fitness World is a corporation with 75 shareholders that are individuals who all hold common stock. At an annual meeting, the shareholders unanimously voted that Fitness World should register as an S corporation with the IRS so that the shareholders may enjoy the flow-through tax benefits. Is Fitness World eligible to register as an S corp.
a. Yes, if Fitness World is already a close corporation under state law.
b. Yes, if all of the shareholders are U.S. citizens or residents.
c. No, because Fitness World has more than 50 shareholders.
d. No, if Fitness World is already a close corporation under state law.