BUL 3320 Chapter 31 Exam Questions
and Answers
LLCs vs Corporations - ANSWER-Unlike S corporations, LLCs can have members
that are corporations, partnerships, or nonresident aliens. LLCs can also have
different classes of members. Unlike corporations, LLCs are not required to hold
annual meetings or maintain a minute book.
Advantages of LLCs - ANSWER-1. Allows flexible membership, including
corporations, partnerships, nonresident aliens, and multiple member classes.
2. Simpler operation without annual meetings or minute books.
3. Perpetual existence in most cases and limited liability for members.
4. Easy tax-neutral transition to/from partnerships or corporations.
Disadvantages of LLCs - ANSWER-1. Ownership transfer requires unanimous
consent unless stated otherwise.
2. Legal uncertainty due to less established case law.
3. Loses favorable tax status if public and lacks consistent legal protections for public
companies.
4. Vulnerable to liability if formalities, capitalization, or fraud rules are violated.
5. Higher setup costs due to detailed operating agreement requirements.
6. Less attractive to venture capitalists and unsuitable for businesses needing high
capital or planning to go public.
Piercing the Company Veil - ANSWER-A court holds members of an LLC personally
liable for the debts of the organization. Happens when: Failure to observe formalities,
Commingling assets, Inadequate capitalization, Fraud
To pierce an LLC veil, a court must find: - ANSWER-1. The defendant controlled the
LLC,
2. The defendant failed to act as if the LLC was a separate legal entity, and
3. As a result of this wrongdoing, the LLC could not pay its debts.
Choices: LLC versus Corporation - ANSWER-LLCs are simpler to run and better for
small businesses, but they can be costly to set up and have uncertain laws.
Corporations, especially C corporations, are better for attracting investors and
scaling because they're easier to sell, merge, or go public. Tax differences between
LLCs and corporations are now minimal.
Limitations of LLCs as a Choice - ANSWER-1. LLCs involve arcane tax issues;
2. C corporations are easier to merge, sell, or take public; and
3. the law of LLCs is uncertain.
Social Enterprises - ANSWER-These organizations pledge to behave in a socially
responsible manner even as they pursue profits.
and Answers
LLCs vs Corporations - ANSWER-Unlike S corporations, LLCs can have members
that are corporations, partnerships, or nonresident aliens. LLCs can also have
different classes of members. Unlike corporations, LLCs are not required to hold
annual meetings or maintain a minute book.
Advantages of LLCs - ANSWER-1. Allows flexible membership, including
corporations, partnerships, nonresident aliens, and multiple member classes.
2. Simpler operation without annual meetings or minute books.
3. Perpetual existence in most cases and limited liability for members.
4. Easy tax-neutral transition to/from partnerships or corporations.
Disadvantages of LLCs - ANSWER-1. Ownership transfer requires unanimous
consent unless stated otherwise.
2. Legal uncertainty due to less established case law.
3. Loses favorable tax status if public and lacks consistent legal protections for public
companies.
4. Vulnerable to liability if formalities, capitalization, or fraud rules are violated.
5. Higher setup costs due to detailed operating agreement requirements.
6. Less attractive to venture capitalists and unsuitable for businesses needing high
capital or planning to go public.
Piercing the Company Veil - ANSWER-A court holds members of an LLC personally
liable for the debts of the organization. Happens when: Failure to observe formalities,
Commingling assets, Inadequate capitalization, Fraud
To pierce an LLC veil, a court must find: - ANSWER-1. The defendant controlled the
LLC,
2. The defendant failed to act as if the LLC was a separate legal entity, and
3. As a result of this wrongdoing, the LLC could not pay its debts.
Choices: LLC versus Corporation - ANSWER-LLCs are simpler to run and better for
small businesses, but they can be costly to set up and have uncertain laws.
Corporations, especially C corporations, are better for attracting investors and
scaling because they're easier to sell, merge, or go public. Tax differences between
LLCs and corporations are now minimal.
Limitations of LLCs as a Choice - ANSWER-1. LLCs involve arcane tax issues;
2. C corporations are easier to merge, sell, or take public; and
3. the law of LLCs is uncertain.
Social Enterprises - ANSWER-These organizations pledge to behave in a socially
responsible manner even as they pursue profits.
