OK Bar Business Organizations 2 — Questions and Answers
Question 1: Under the Oklahoma Revised Uniform Partnership Act, what is the default rule for sharing profits among general partners when the agreement is silent?
- Profits are divided based on each partner's capital contribution
- Profits are divided equally among all partners regardless of contribution (Correct answer)
- Profits are allocated based on the time each partner devotes to the business
- Profits are distributed according to each partner's seniority in the firm
Correct answer: Profits are divided equally among all partners regardless of contribution
Under RUPA as adopted in Oklahoma, partners share profits equally by default unless their partnership agreement expressly provides for a different allocation.
Question 2: A limited partner in an Oklahoma limited partnership risks losing limited liability protection if the limited partner:
- Receives periodic distributions of partnership profits
- Participates in the control and management of the partnership business (Correct answer)
- Assigns their partnership interest to a qualified transferee
- Makes additional loans to the partnership at above-market interest rates
Correct answer: Participates in the control and management of the partnership business
Under the control rule, a limited partner who participates in the control of the business may become personally liable to third parties who reasonably believed the limited partner was a general partner.
Question 3: Under the Oklahoma Limited Liability Company Act, a member's personal liability for LLC debts and obligations is generally:
- Unlimited, equivalent to a general partner in a general partnership
- Limited — members are not personally liable for LLC obligations solely by reason of membership (Correct answer)
- Capped at twice the member's initial capital contribution to the LLC
- Determined solely by the terms of the LLC's operating agreement
Correct answer: Limited — members are not personally liable for LLC obligations solely by reason of membership
Oklahoma LLC Act protects members from personal liability for LLC obligations solely by reason of being a member, which is one of the primary advantages of the LLC form.
Question 4: An LLC that has not elected to be taxed as a corporation will be taxed by default as:
- A C-corporation subject to double taxation at the entity and shareholder levels
- A sole proprietorship (if single-member) or partnership (if multi-member) under check-the-box rules (Correct answer)
- An S-corporation with income flowing directly to members' personal returns
- A nonprofit entity exempt from federal income tax
Correct answer: A sole proprietorship (if single-member) or partnership (if multi-member) under check-the-box rules
Under IRS check-the-box regulations, a single-member LLC is disregarded for tax purposes and a multi-member LLC is taxed as a partnership by default.
Question 5: Under the Oklahoma Revised Uniform Partnership Act, a partner who wrongfully dissociates from a partnership is:
- Released from all liability for debts incurred before the date of dissociation
- Liable to the partnership for damages caused by the wrongful dissociation (Correct answer)
- Automatically converted to limited partner status without further obligation
- Entitled to an immediate buyout at full market value without any deduction for damages
Correct answer: Liable to the partnership for damages caused by the wrongful dissociation
RUPA imposes liability for damages on a partner who wrongfully dissociates, because wrongful dissociation breaches the partnership agreement and harms the remaining partners.
Question 6: In an Oklahoma general partnership, each partner's authority to bind the partnership in ordinary business transactions is best described as:
- Limited strictly to acts expressly authorized in the written partnership agreement
- Apparent agency authority for acts in the ordinary course of the partnership's business (Correct answer)
- Restricted to acts approved by a majority vote of all partners in advance
- Nonexistent unless the partner has been formally designated as managing partner
Correct answer: Apparent agency authority for acts in the ordinary course of the partnership's business
Under RUPA, each partner acts as an agent of the partnership and can bind it for acts in the ordinary course of business, giving each partner apparent authority within that scope.
Question 7: An LLC operating agreement is best described as:
- The public formation document filed with the Oklahoma Secretary of State to create the LLC
- The internal governing document among members dictating operations, rights, and management structure (Correct answer)
- A contract between the LLC and its principal creditors limiting member liability exposure
- The IRS form used by members to elect pass-through tax treatment for the entity
Correct answer: The internal governing document among members dictating operations, rights, and management structure
An LLC operating agreement is the members' private governing contract that controls the LLC's internal operations, allocation of profits and losses, management rights, and member obligations.
OK Bar Business Organizations 2
Under the Oklahoma Revised Uniform Partnership Act, what is the default rule for sharing profits among general partners when the agreement is silent?