The Law of Corporations and Other Business Organizations

Chapter Review Questions

1. In what ways are limited liability companies
different from general partnerships?

2. If Sandy owes Mike $5,000 that she is unable
to repay, can she assign to him her
rights as a limited liability company member
to receive payments as set forth in the
company’s operating agreement?

Can Sandy assign her entire rights in the
limited liability company to Mike, making
him a new member with the right to manage
the business?

3. Katherine is a member of a membermanaged
limited liability company that designs
software called K & A Software Ltd.
Liability Company. Can she enter the company
into a contract for the design of new
educational software for a local college?

What if the K & A Software Ltd. Liability
Company is manager managed?

4. Are the members of a limited liability
company always protected from personal
liability for the debts and obligations of the
company?

What are some circumstances under which
members of a limited liability company
may be personally liable for the company’s
debts and obligations?

5. Suppose that you are forming a limited liability
company that will own and operate
auto dealerships. Your company will operate
only one dealership in Missouri to start
with, but you want to expand into Illinois,
Texas, and Arizona. What steps might you
take during the organization process to plan
for your future expansion?

6. If you are a family-practice physician going
into business with three other doctors,
what options are available in your state for
transacting business?

Why might a professional limited liability
company be an attractive alternative?

7. Why is it important to designate in the articles
of organization whether a limited liability
company will be member managed
or manager managed?

8. Why might an investor prefer to become a
member of an LLC rather than a limited
partner of a limited partnership?

9. Suppose that Dan decides to form a limited
liability company to operate a grocery
delivery service with his two sons,
Tom and Bob. Tom and Bob are each
contributing $10,000, but Dan’s initial
contribution is $20,000. Can the LLC’s
operating agreement provide for Dan to
receive distributions that are twice the
amount of the distribution that Tom and
Bob each receive?

If the operating agreement is silent on the
subject of distributions, how would a
$6,000 distribution be divided among the
three members?

10. Suppose that you have formed a limited
liability company in your state to operate a
sporting goods franchise. Your business
has become very successful and you and
your members would like to expand. One
of your members, who will be managing
the new store, lives in a neighboring state
and would like to open a store in his
hometown. Would it be necessary to form a
new limited liability company, or can your
limited liability company own and operate
a store in a neighboring state?

What formalities may be required?