Question Details

What types of business can be converted to an LLC 



1) Fred wants to start an adult daycare business, but is worried about potential liability. He hires an attorney to incorporate his business, but does not want to keep paying the attorney, so he dismisses the attorney as soon as the incorporation is accomplished. What else must Fred do to make sure he holds on to his protection from personal liability? 
A.  He must buy malpractice insurance.
B.  He must maintain the corporate formalities and records.
C.  He must post a disclaimer, advising persons who visit the property that the management is not responsible for injuries to guests.
D.  He must hire an independent contractor to take over the care of the patients.
2) Rita is the sole shareholder of an auto repair shop that is incorporated. She is at work one day when her sister comes in and tells her she needs $100 for schoolbooks. Rita looks in her wallet, and seeing that it contains no money, opens the cash register and takes out $100, which she hands to her sister. The sister looks worried, but Rita tells her, “Don’t worry; I take money out of the cash register all the time for my personal expenses. It- my business, so I can take money out whenever I want.” Her customer, who is waiting to pick up his car, tells Rita that she is risking the piercing of the corporate veil. Is the customer correct? 
A.  Yes, Rita is not the board of directors.
B.  No, Rita is the only shareholder and can do what she wants.
C.  No, the customer is wrong.
D.  Yes, Rita is co-mingling personal assets with corporate assets.
3) Rover Corporation is a regular corporation that has not elected S corporation status. In 1992, Rover earned $100,000; in 1993, Rover distributes $50,000 to its shareholders. Which of the following best describes the tax consequences to rover and its shareholders? 
A.  Rover is taxed on $100,000 in 1992; the shareholders are not subject to tax.
B.  The shareholders are taxed on $100,000 in 1992; Rover is not subject to tax.
C. Rover is taxed on $100,000 in 1992; the shareholders are taxed on $50,000 in 1992.
D.  Rover is taxed on $100,000 in 1992; the shareholders are taxed on $50,000 in 1993.

4) What types of business can be converted to an LLC ? 
A.  General partnerships and limited partnerships only
B.  General partnerships only 
C.  Corporations and limited partnerships only 
D.  Corporations, general partnerships, and limited partnerships 
5) A particular issue of stock carries a stated dividend rate of 8 %; that if this dividend is not paid during a particular year, it will be paid in a subsequent year before common stock dividends are paid; and that upon liquidation of the corporation, the owner will receive $300 per share before the
common stockholders get anything. This stock is 
A.  preferred stock 
B.  noncumulative preferred stock with a liquidation preference
C. common stock 
D.  cumulative preferred stock with a liquidation preference 




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