Introduction to Limited Liability Companies

Introduction to Limited Liability

Companies

#6860CEXAM MATERIAL

6860C Final Exam • 1

INTRODUCTION TO LIMITED LIABILITY COMPANIES (COURSE #6860C)

COURSE DESCRIPTION

This course provides guidance for the formation, operation, dissolution, and taxation of limited liability companies, an established business form in the United States that gives owners the benefits of pass-through taxation and limited liability. Includes information that compares the limited liability company business entity with other business forms. No prerequisites. Course level: Basic. Course #6860C – 8 CPE hours.

LEARNING ASSIGNMENTS AND OBJECTIVES

As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment.

ASSIGNMENT 1: SUBJECTIntroduction and HistoryEstablishment of a Limited Liability CompanyMembers’ Rights and Duties

Study the course materials from pages 1 to 42Complete the review questions at the end of each chapterAnswer the exam questions 1 to 18

Objectives:

• To identify characteristics of limited liability companies (LLCs) and other business forms in the United States

• To recall some of the formation requirements for LLCs• To recognize some of the various options in structuring membership interests

2 • 6860C Final Exam

ASSIGNMENT 2: SUBJECTManagement of a Limited Liability CompanyLiability of MembersProfessional Limited Liability CompaniesForeign Limited Liability Companies


Objectives:

• To identify the different management structures available to LLCs that allow them to maintain their limited liability status

• To recognize liability issues related to LLCs• To recall features and requirements of professional limited liability companies• To recall activities considered to be foreign as related to limited liability companies

ASSIGNMENT 3: SUBJECTFinancing, Distributions, and WithdrawalsMerger and ConversionDissolution of a Limited Liability CompanyTaxation of LLCs


Objectives:

• To recognize the various features and requirements of member financing and withdrawals• To identify features of mergers and conversions of LLCs• To recall different ways that an LLC can be dissolved, and the related implications• To recognize tax consequences of LLCs

ASSIGNMENT 4: SUBJECTAppendices

Study the course materials from pages 153 to 196

ASSIGNMENT 5:• Complete the Answer Sheet and Course Evaluation and submit to PES


NOTICE

This course and test have been adapted from supplemental materials and information contained in the materials entitled Introduction to Limited Liability Companies. Use of these materials or services provided by Professional Education Services, LP (“PES”) is governed by the Terms and Conditions on PES’ website (www.mypescpe.com). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional.

© Professional Education Services, LP 2020

Program Publication Date 8/14/2020

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INTRODUCTION TO LIMITED LIABILITY COMPANIES (COURSE #6860C)

EXAM INFORMATION

COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within ONE YEAR from the date of purchase.

TEST FORMAT: The following final exam, consisting of 40 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test.

LICENSE RENEWAL INFORMATION: The Introduction to Limited Liability Companies course (#6860C) qualifies for 8 CPE hours.

PROCESSING: You must score 70% or better to pass. If you mail or fax your exam, when you pass, your Certificate of Completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this. When completing your exam online, grading is instantaneous. Upon achieving a passing score, the completion certificate is immediately available in your account under “My Completed CPE.” Please note: failed exams may be retaken. Per NASBA and AICPA guidelines, missed questions cannot be indicated until after you pass.

GRADING OPTIONS – Please choose only ONE of the following:

GRADING OPTIONS: Please choose only ONE of the following. If mailing or faxing, make sure to fill out your Answer Sheet completely prior to submitting it.

• ONLINE GRADING –Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user, you must set up a new user account). Click on the course title of the exam you wish to take. Once all answers have been selected, click the “Submit/Grade Answers” button at the bottom of the page for instant grading and certification. If you do not see the exam listed, click on “My CPE in Progress.” Click on the “Add Exam to Account” button and follow the instructions.

• MAIL – Your exam will be graded and your certificate of completion mailed to you within one business day. Your certificate will be dated according to the postmark date. Please mail your Answer Sheet to:

Professional Education Services, LP4208 Douglas Blvd., Ste 50

Granite Bay, CA 95746

• FAX – Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) 791-4099.

THANK YOU FOR USING PROFESSIONAL EDUCATION SERVICES.


INTRODUCTION TO LIMITED LIABILITY COMPANIES (COURSE #6860C) – FINAL EXAM

The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet.

1. Which of the following is correct regarding limited liability companies (LLCs):

A. LLCs are not recognized by the IRS for tax purposes

B. LLCs are purely creatures of state lawC. LLCs are formed by following the procedures

required by the federal governmentD. LLCs are the oldest type of business

association in the United States

2. In most states, forming an LLC requires the preparation and filing of which of the following:

A. articles of incorporationB. bylawsC. articles of organization

D. petition

3. Which of the following is correct regarding an operating agreement:

A. it is similar to a partnership agreementB. it provides a blueprint for how the LLC will be

runC. it provides how profits and losses will be

divided

D. all of the above

4. What is a domestic LLC with at least two members automatically classified as for federal income tax purposes.

A. a partnershipB. a corporationC. an S corporation

D. a sole proprietorship

5. Which of the following is not an advantage of an LLC:

A. limited liability for all ownersB. flexibility in selecting a management

structureC. easy liquidityD. limited formalities, such as meetings and

record-keeping

6. Which of the following is correct regarding a general partnership:

A. it requires a written agreementB. it is not a taxable entityC. it can generally not accept and distribute

property without being subject to taxD. it generally extends beyond the death or

withdrawal of a partner

7. What determines the longevity of an LLC:

A. the death of a memberB. the operating agreementC. state law

D. either B or C above

8. Which of the following is a disadvantage of C corporation status:

A. limited life spanB. personal liability of all ownersC. limited transferability of ownership

D. double taxation


9. To qualify for S corporation status, a corporation must meet all of the following criteria except:

A. have no more than 100 shareholdersB. have only allowable shareholdersC. be a domestic corporation

D. issue more than one class of stock

10. With a limited liability company, management of the entity is determined by which of the following:

A. state lawB. the membersC. the member with the greatest seniority

D. federal statute

11. Which of the following is not true regarding the provisions of the Uniform Limited Liability Company Act (ULLCA):

A. they are purely recommendedB. they can be very influential in affecting state

lawC. they serve as an important guide in analyzing

approaches to dealing with specific legal issues

D. they have been adopted by all states

12. What is the first step in the formation of an LLC in all states:

A. filing the articles of organizationB. public notice advertisingC. filing the operating agreementD. filing a choice of entity agreement with the

IRS

13. In California, what must the articles of organization include:

A. a provision limiting the type of business in which the limited liability company may engage

B. the name of the limited liability companyC. the time at which the limited liability company

is to dissolveD. the names, numbers and qualifications of the

managers of the limited liability company

14. Which of the following vary greatly from state to state:

A. the fees for registering as an LLCB. the reporting requirementsC. both A and BD. none of the above; they are the same for

each state

15. What is the upper limit on the number of members a limited liability company may have:

A. 35B. 75C. 100

D. none of the above; there is no upper limit

16. Which of the following theories includes the duty to avoid self-dealing and not to compete with the company:

A. the duty of loyaltyB. the duty of careC. piercing the corporate veilD. alter ego

17. Which of the following states expressly excludes memberships in a limited liability company as a security for purposes of state law:

A. AlaskaB. MaineC. Michigan

D. Vermont


18. Which of the following is correct regarding state law provisions that govern when and under what circumstances a member may dissociate from an LLC:

A. the provisions are the same for each stateB. the provisions all include a specific notice

period before a member may withdrawC. the provisions can be modified by the entity’s

operating agreementD. the provisions entitle the LLC to damages

from the dissociating member

19. Which of the following generally defines an LLC’s management structure:

A. federal lawB. state lawC. the LLC’s operating agreement

D. the articles of organization

20. Under common law, what type of authority exists when a third party believes the purported agent has authority to bind the principal, whether he does or not:

A. express authorityB. implied authorityC. apparent authority

D. contractual authority

21. Which of the following is correct in determining the circumstances under which a limited liability member may be held personally liable:

A. the law of the state in which it was organized must be examined

B. merely failing to abide by formalities involving meetings of the entity will generally eliminate limited liability

C. if no express authority is stated in the laws of the state, none can be enforced

D. all of the above

22. Which of the following is correct regarding professional LLCs:

A. they are allowed in every stateB. they must always have more than a single

memberC. membership is restricted to those licensed by

a state to perform a specified service such as doctors, accountants, and architects

D. they are an antiquated business form

23. Which of the following is correct regarding shareholders’ liability in a professional corporation:

A. shareholders normally escape liability for the actions of the corporation

B. shareholders normally escape liability for the debts or obligations of the corporation

C. shareholders normally remain liable for their own actions

D. all of the above

24. Under the ULLCA, which of the following activities would be considered “transacting business” in a foreign state:

A. maintaining, defending, or settling an action or proceeding

B. seeking and serving customersC. maintaining bank accounts

D. all of the above

25. The nature and valuation of contributions of new members after the formation of an LLC normally requires which of the following:

A. the consent of all other members of the LLCB. an appraisalC. the state’s approval

D. a change to the operating agreement


26. Generally, when is a member of an LLC allowed to withdraw:

A. if, according to the terms and conditions set forth in the entity’s articles of organization or operating agreement, it is allowed

B. upon the consent of all of the other membersC. after the member has provided a 30 day

written notice to all members

D. either A or B

27. What is the rule under the ULLCA for how distributions must be made to members of a limited liability company before its dissolution or winding up:

A. members receive distributions in proportion to the contribution they made to the company

B. members receive equal shares of any distributions

C. original members must always receive a greater percent of distributions than members who joined after the LLC’s formation

D. the greater of A or B

28. For an LLC, which of the following is correct regarding the demand for in kind distributions by a member:

A. members are generally permitted to demand an in kind distribution by state regulations

B. in kind distributions are required to be distributed by the company under all circumstances

C. in kind distributions are limited based on the type of contribution made

D. in kind distributions are generally not allowed unless expressly provided for in the company’s operating agreement

29. Which type of business entity may a limited liability company merge with or into:

A. another limited liability companyB. a partnershipC. a foreign corporation

D. any of the above

30. What is the result of a conversion:

A. one entity combines with another pre-existing entity

B. one entity divides into two or more entitiesC. there is a change in the organization of an

entity without a disruption or interruption of the organization’s existence

D. an entity dissolves and stops conducting business

31. Regarding conversions to an LLC, what is the general rule in all states:

A. a business is required to wind up its affairs prior to conversion

B. a business is required to pay its liabilities prior to conversion

C. a conversion is considered to be a dissolution of the business

D. all partners must agree to a plan of conversion

32. Each of the following events commonly lead to administrative dissolution except:

A. failure to pay a filing fee or an annual registration fee

B. failure to amend the articles of organization, as required by state law

C. the assets of the LLC are being misapplied or wasted

D. failure to file a mandatory statement of changes in the entity’s operation

33. Each of the following circumstances warrant member-initiated judicial dissolution except:

A. the economic purpose of the company is likely to be unreasonably frustrated

B. the company failed to purchase the petitioner’s distributional interest as required by state law

C. liquidation is necessary for the protection of the rights or interests of a complaining member

D. failure to file an annual report or other report as required by state law


34. Which of the following is correct regarding provisions for dissolution:

A. they should not be included in the operating statement for all LLCs

B. they are the same in all states for LLCsC. they should be included in all LLCs’ operating

agreementsD. they should be included in all LLCs’

operating agreements except single-member companies

35. In winding up a limited liability company’s business, the assets of the company must first be applied to which of the following:

A. to discharge its obligations to creditorsB. to members who have not previously

received a return of all of their respective contributions

C. to each member in equal shares

D. to the original members

36. What effect did the 1997 “check-the-box” regulations have on the law regarding LLCs:

A. they added the requirement that an LLC must have a limited life span in order to qualify for pass-through status

B. they eliminated the application of the Kintner regulations

C. they added the requirement that an LLC must have a minimum of five members

D. they added the requirement that an LLC must receive corporate federal tax treatment

37. Which of the following is not required to obtain an employee identification number (EIN):

A. a single-member LLCB. a partnershipC. a C corporation

D. an S corporation

38. Each LLC member’s share of profits and losses are set out in which of the following:

A. the by-lawsB. the articles of incorporationC. the operating agreementD. state law

39. A limited liability company that elects corporate status by filing Form 8832 is precluded from switching back to partnership status for how many years:

A. 1 yearB. 3 yearsC. 5 yearsD. 7 years

40. Which of the following is correct of LLCs for state tax purposes:

A. most states follow the federal lead allowing LLCs to elect pass-through tax status

B. most states do not distinguish between domestic and foreign limited liability companies

C. both A and B above D. none of the above

Congratulations –

you’ve completed the exam!


INTRODUCTION TO LIMITED LIABILITY COMPANIES #6860C (8 CPE HOURS) ANSWER SHEET (8/20)

IMPORTANT NOTE: For certification, this answer sheet must be completed and submitted to PES for grading within ONE YEAR from the date of purchase. Please use BLACK INK and PRINT for quicker processing – thank you.

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INTRODUCTION TO LIMITED LIABILITY COMPANIES #6860C - COURSE EVALUATION

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Introduction to Limited Liability Companies

Documents

Transcript of Introduction to Limited Liability Companies