Taxation Essentials of LLCs and Partnerships

Solutions

Chapter 1

Knowledge check solutions

• 1.
  1. Incorrect. As a limited partner, the partnership does not require Midge to restore deficit balances in her capital account.
  2. Incorrect. As a limited partner, the partnership does not require Midge to restore deficit balances in her capital account.
  3. Correct. As a limited partner, with no deficit restoration obligation, Midge can lose no more than her existing investment in the partnership.
  4. Incorrect. As a limited partner, with no deficit restoration obligation, Midge can lose up to her existing investment in the partnership.
• 2.
  1. Correct. As the only general partner, Midge is personally responsible for all the partnership's debts.
  2. Incorrect. Remember, Midge is the only general partner in this partnership and is responsible for all of its debts.
  3. Incorrect. As a general partner, Midge is personally responsible for the partnership's debts, in addition to her investment.
  4. Incorrect. As a general partner, Midge is personally responsible for all the partnership's debts. Only limited partners may escape liability for partnership debts.
• 3.
  1. Incorrect. LLCs can exist with only one member. In contrast, LLPs and LLLPs are required to have two or more partners.
  2. Correct. All members of both LLCs and LLPs have limited liability, without the requirement that they be prohibited from participating in management.
  3. Incorrect. An LLC does have members rather than partners.
  4. Incorrect. LLCs do not have general partners, whereas LLPs do.
• 4.
  1. Incorrect. ...