Quiz 5 Liability

Question 1

Limited Liability Company (LLC) definition (2 parts)

Answer 1

“Hybrid entity” has
1. Limited liability of a corporation
2. Tax advantage of a partnership

Question 2

What is the tax advantage of a partnership

Answer 2

The business doesn’t pay income tax

Question 3

Limited Liability Partnership (LLP) definition

Answer 3

Same as LLC, but for Professionals (ex doctors, dentists, optometrists)

Question 4

Liability of Members of LLCs

Answer 4

Members (owners) have are shielded from personal liability.
Their liability is limited to amount of their investment.

Question 5

Liability of Partners of LLPs (3 things) #1

Answer 5

1. The LLP allows Professionals (ex doctors) to avoid personal liability for the malpractice of other partners

Question 6

Liability of Partners of LLPs (3 things) #2

Answer 6

2. UNLIKE LLC, the partner is still liable for his or her own wrongful acts

Question 7

Liability of Partners of LLPs (3 things) #3

Answer 7

3. the LLP partner who supervised the individual who committed a wrongful act is also liable

Question 8

Limited Partnerships (LPs) definition (3 things) #1

Answer 8

A limited partner:
1. Contributes cash or other property

Question 9

Limited Partnerships (LPs) definition (3 things) #2

Answer 9

A limited partner:
2. Is not involved in management responsibilities

Question 10

Limited Partnerships (LPs) definition (3 things) #3

Answer 10

A limited partner:
3. Is not personally liable for partnership debts beyond the amount of his or her investment (capital contribution)

Question 11

LPs Liability Exception

Answer 11

If a limited partner engages in management, he loses his limited liability and is treated as a general partner for liability purposes

Question 12

Limited Partnerships (LPs) Liability (2 things)

Answer 12

1. Is not personally liable for partnership debts beyond the amount of his or her investment (capital contribution)
2. Liability Exception
   :If a limited partner engages in management, he loses his limited liability and is treated as a general partner for liability purposes

Question 13

Corporate Shareholders Liability

Answer 13

Shareholders are not personally liable for corporate acts

Question 14

Officers Liability (2 things)

Answer 14

1. Not personally liable for the corporation’s debts or obligations,
2. but they can be held personally liable for their own wrongful acts, negligence, or violations of fiduciary duties.

Question 15

Directors Liability (4 things) #1

Answer 15

1. generally protected from personal liability for corporate debts or obligations due to the corporate veil

Question 16

Directors Liability (4 things) #2

Answer 16

liable if they breach duty of care, loyalty, or good faith

Question 17

Directors Liability (4 things) #3

Answer 17

liable if they:
- commit fraud or illegal acts

Question 18

Directors Liability (4 things) #4

Answer 18

liable if they:
-authorize wrongful acts or violate statutory obligations

Question 19

Corporate Veil definition

Answer 19

Legal separation between a corporation and its owners. Protects owners from personal liability for their company’s debts and legal issues.

Question 20

Which companies does Corporate Veil apply to

Answer 20

Corporations like LLCs, S Corporations, and C Corporations

Question 21

Which companies does Corporate Veil not apply to

Answer 21

sole proprietorships or general partnerships, where the owners are personally responsible for the business’s debts.

Question 22

What does “pierce the corporate veil” mean

Answer 22

When the court holds the corporation shareholder or director personally liable for the corporation’s debts

Question 23

In the case study why did the court pierce the corporate veil?

Answer 23

Corporate and personal assets were commingled (blended together ) so the corporation had no separate identity