Business Organization Types Flashcards
7 cards from real CLA/CP Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Business Organization Types flashcards as text
Which business entity type provides owners with limited liability protection while allowing profits and losses to pass directly to owners' personal tax returns without entity-level taxation?
Answer: Limited liability company (LLC)
An LLC combines limited liability protection with pass-through taxation, avoiding the double taxation that affects C corporations.
A limited partnership (LP) must have at least:
Answer: One general partner and one limited partner
A limited partnership requires at least one general partner (with unlimited liability) and at least one limited partner (with limited liability).
Which document governs the internal operations of a limited liability company?
Answer: Operating agreement
An LLC's operating agreement sets forth the rights, duties, and obligations of members and managers, governing internal operations.
A shareholder in a C corporation who is also an employee receives compensation. How is that compensation taxed?
Answer: At both the corporate level as a deduction and the shareholder's personal level as income
Compensation paid to a shareholder-employee is deducted by the corporation (reducing corporate tax) and is taxable income to the shareholder-employee.
Which of the following is NOT a characteristic of a general partnership?
Answer: The partnership itself pays federal income taxes on profits
A general partnership is a pass-through entity; the partnership itself does not pay federal income tax—profits and losses pass through to individual partners.
A professional corporation (PC) is most commonly used by:
Answer: Licensed professionals such as doctors, lawyers, and accountants
Professional corporations are special corporate entities authorized for licensed professionals, allowing them to incorporate while complying with state licensing requirements.
What is 'piercing the corporate veil'?
Answer: A court holding shareholders personally liable by disregarding the corporate entity
Piercing the corporate veil occurs when a court disregards the corporation's separate legal existence and holds shareholders personally liable, typically due to fraud or commingling of funds.