Question

Which of the following is true of profits and losses of an LLC whose operating agreement does not contain profit or loss sharing clauses?

1) A member who invests 10 percent capital must bear 10 percent of the losses.
2) A member who invests 40 percent of the capital receives 20 percent share in profit.
3) A member who invests 30 percent of the capital receives 30 percent of the profit.
4) All members receive equal shares in profits regardless of capital contributed.

Answer 1

In a Limited Liability Company (LLC) without profit or loss sharing clauses, the profits and losses are typically distributed based on the members' capital contributions.

Step-by-step explanation:

In a Limited Liability Company (LLC) without profit or loss sharing clauses in its operating agreement, the profits and losses are typically distributed based on the members' capital contributions.

1. A member who invests 10 percent capital is responsible for bearing 10 percent of the losses.
2. A member who invests 40 percent of the capital does not receive a specific percentage share in profit in this scenario.
3. A member who invests 30 percent of the capital does not receive a specific percentage share in profit in this scenario.
4. All members do not receive equal shares in profits regardless of capital contributed.

Therefore, option 1 is true of profits and losses in an LLC without profit or loss sharing clauses.