Jasmin,Shou-Yi,and Vanessa Form an LLC,and Each Contributes $25,000 in Capital

question 32

Multiple Choice

Jasmin,Shou-Yi,and Vanessa form an LLC,and each contributes $25,000 in capital.The LLC operates for a period of time,during which it borrows money from banks and purchases goods on credit from suppliers.After some time,the LLC experiences financial difficulties and goes out of business.If the LLC fails with $500,000 in debts,which of the following is an accurate statement regarding the liability of Jasmin,Shou-Yi,and Vanessa?

• A)Each will lose her capital contribution of $25,000,but will not be personally liable for the rest of the unpaid debts of the LLC.
• B)Each will lose her capital contribution of $25,000,and will be personally liable for the rest of the unpaid debts of the LLC.
• C)Each will not be personally liable for the $500,000 in debts,and will be reimbursed for her $25,000 capital contribution.
• D)Each will not be personally liable for the $500,000 in debts,and a constructive trust for the entire $75,000 in capital contributions will be imposed so that Jasmin,Shou-Yi and Vanessa can form a new business venture.

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Definitions:

Marginal Utility

The change in satisfaction or benefit derived from consuming an additional unit of a good or service.

Total Utility

The total satisfaction received from consuming a particular quantity of a good or service.

Diminishing Marginal Utility

The decrease in satisfaction or usefulness obtained from each additional unit of consumption.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, due to the availability of more desirable substitutes.