CLA/CP Exam CLA/CP Business Organization Types 1

Question 1

Which business entity allows its owners to avoid personal liability while also electing to be taxed as a partnership?

Accepted Answer

Limited liability company (LLC)

Answer

General partnership

Answer

Sole proprietorship

Answer

C corporation

Question 2

A sole proprietorship differs from other business forms primarily because:

Accepted Answer

There is no legal distinction between the owner and the business

Answer

It requires a formal partnership agreement

Answer

It must register with the SEC before operating

Answer

Owners are shielded from personal liability for business debts

Question 3

In a general partnership, which of the following best describes each partner's liability for the partnership's debts?

Accepted Answer

Partners are jointly and severally liable for all partnership debts

Answer

Each partner is liable only up to the amount of their capital contribution

Answer

Liability is capped at the value of the partnership's assets

Answer

Only the managing partner bears personal liability

Question 4

Which statement correctly describes an S corporation?

Accepted Answer

It passes income and losses directly to shareholders, avoiding double taxation

Answer

It may have an unlimited number of shareholders

Answer

Its income is taxed at both the corporate level and the shareholder level

Answer

It is required to have a board of directors but not corporate bylaws

Question 5

What is the primary distinguishing feature of a limited liability partnership (LLP) compared to a general partnership?

Accepted Answer

Each partner in an LLP is shielded from personal liability for the malpractice or negligence of other partners

Answer

LLP partners are not allowed to participate in day-to-day management

Answer

An LLP must have at least one general partner with unlimited liability

Answer

LLPs are only available to non-professional businesses such as retailers

Question 6

Which of the following is a characteristic unique to a close corporation compared to a publicly traded corporation?

Accepted Answer

A close corporation's shareholders may manage the business directly without a formal board of directors

Answer

A close corporation must have its shares listed on a national stock exchange

Answer

A close corporation is required to hold annual shareholder meetings open to the public

Answer

A close corporation is exempt from all state corporate formation requirements