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Homework answers / question archive / 1)Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC
1)Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. Lenny, Sarah and Sam are properly referred to as:
members.
partners.
shareholders.
limited partners.
2. Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. The team is sued for negligence because an individual who turned to see the quarterback running naked crashed her car. Which of the following is true?
The LLC may have liability, but not the individual owners.
The individual owners may have liability, but not the LLC itself.
The LLC may have liability as well as the owners individually, but the owners' individual liability is limited to twice their investment in the company.
The LLC may have liability as well as the owners individually, and the owners' liability unlimited.
3. Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. Which of the following statements is true?
The LLC is always taxed like a partnership.
The LLC is always taxed like a corporation.
The LLC can choose to be taxed like a corporation or like a partnership.
Neither the LLC nor its members pay tax on profits earned by it.
In this scenario, an adult-oriented football team is owned by Lenny, Sarah, and Sam. When Lenny, Sarah, and Sam establish a limited liability company (LLC) for the team, each person is properly referred to as members of the LLC. The LLC protects each member from personal liability except for in cases where they may be fraud or mismanagement. In these cases, the court may "pierce the veil" and hold each individual member liable.
In a corporation, shareholders are only liable up to the extent of their investment. In a general partnership, each partner will have shared liability for all of the business losses. In a limited partnership, one partner holds the liability for all of the business losses while the other partner has a limited degree of liability. The extent of each partner's liability is indicated in the written partnership agreement.
Since the football team has been established as an LLC, the IRS will automatically tax the team as a partnership. However, the team can select to be taxed at the corporate tax level. If the LLC incurs a liability, such as in the case of a lawsuit, Lenny, Sarah, and Sam will be protected from personal liability. Instead, the court will hold the football team liable for the damages.
