Q1: What type of business entity combines the tax treatment of a
partnership with the limited liability of a corporation?
ANSWER A Limited Liability Company (LLC).
Q2: Which business entity is held by two or more individuals that are not
incorporated?
ANSWER A partnership.
Q3: What form of business organization is limited by the IRC regarding
the number and type of shareholders?
ANSWER An S corporation.
Q4: True or False: An unincorporated entity with more than one owner is,
by default, taxed as a partnership.
ANSWER True.
Q5: True or False: Both C corporations and S corporations pay tax at the
entity level.
ANSWER False. S corporations are pass-through entities; only C
corporations pay tax at the entity level.
Q6: Which legal entity provides the least flexible legal arrangement for
owners?
ANSWER A corporation.
,Q7: Which entity must file articles of organization with the state to
receive formal recognition?
ANSWER An LLC (Limited Liability Company).
Q8: True or False: Limited partnerships are legally formed by filing a
certificate of limited partnership with the state.
ANSWER True.
Q9: True or False: Sole proprietorships are treated as legal entities
separate from their individual owners.
ANSWER False. Sole proprietorships are not separate legal entities
from their owners.
Q10: What is the primary tax disadvantage of a sole proprietorship?
ANSWER The owner must pay self-employment tax on all net business
income and receives no liability protection.
Q11: In a general partnership, who is liable for the debts of the
business?
ANSWER All general partners are jointly and severally liable for the
partnership's debts.
Q12: What is a key advantage of operating as a partnership over a C
corporation regarding taxation?
ANSWER Partnership income avoids double taxation because income
passes through to partners and is taxed only once on their individual
returns.
Q13: What is one disadvantage of operating as a partnership?
ANSWER Some tax-exempt fringe benefits, such as group-term life
insurance, are not available to partners.
,Q14: How is a single-member LLC taxed by default?
ANSWER As a disregarded entity (sole proprietorship), reporting
income on Schedule C of Form 1040.
Q15: How is a multi-member LLC taxed by default?
ANSWER As a partnership, filing Form 1065.
Q16: What tax year-end must an unincorporated entity with only one
owner adopt?
ANSWER The entity must adopt the same tax year-end as its owner.
Q17: What are the 'check-the-box' regulations?
ANSWER IRS rules allowing eligible entities to elect their federal tax
classification (e.g., corporation, partnership, or disregarded entity) by
filing Form 8832.
Q18: Can a single-member LLC elect to be treated as a corporation for
tax purposes?
ANSWER Yes, by filing Form 8832 (Entity Classification Election).
Q19: What is double taxation in the context of C corporations?
ANSWER Corporate earnings are taxed first at the corporate level and
again as dividends when distributed to shareholders.
Q20: Which entity types are NOT subject to double taxation?
ANSWER Partnerships, S corporations, and LLCs (pass-through
entities).
Q21: True or False: LLC members have more flexibility than corporate
shareholders to alter their legal arrangements with each other.
ANSWER True.
, Q22: What is the primary advantage of a C corporation over a
partnership when raising capital?
ANSWER A C corporation can issue multiple classes of stock and has
no limit on the number of shareholders, making capital-raising more
flexible.
Q23: What does 'pass-through taxation' mean?
ANSWER The entity itself pays no income tax; income, deductions,
credits, and losses flow through to the owners and are reported on their
individual returns.
Q24: What is a limited partner's liability limited to?
ANSWER The amount of capital contributed to the partnership.
Q25: In a limited partnership, who manages the business?
ANSWER The general partner(s); limited partners are passive
investors.
Q26: What tax form does a partnership file?
ANSWER Form 1065, U.S. Return of Partnership Income.
Q27: What tax form does an S corporation file?
ANSWER Form 1120-S, U.S. Income Tax Return for an S Corporation.
Q28: What tax form does a C corporation file?
ANSWER Form 1120, U.S. Corporation Income Tax Return.
Q29: What schedule reports a partner's allocable share of partnership
income, losses, and credits?
ANSWER Schedule K-1 (Form 1065).
partnership with the limited liability of a corporation?
ANSWER A Limited Liability Company (LLC).
Q2: Which business entity is held by two or more individuals that are not
incorporated?
ANSWER A partnership.
Q3: What form of business organization is limited by the IRC regarding
the number and type of shareholders?
ANSWER An S corporation.
Q4: True or False: An unincorporated entity with more than one owner is,
by default, taxed as a partnership.
ANSWER True.
Q5: True or False: Both C corporations and S corporations pay tax at the
entity level.
ANSWER False. S corporations are pass-through entities; only C
corporations pay tax at the entity level.
Q6: Which legal entity provides the least flexible legal arrangement for
owners?
ANSWER A corporation.
,Q7: Which entity must file articles of organization with the state to
receive formal recognition?
ANSWER An LLC (Limited Liability Company).
Q8: True or False: Limited partnerships are legally formed by filing a
certificate of limited partnership with the state.
ANSWER True.
Q9: True or False: Sole proprietorships are treated as legal entities
separate from their individual owners.
ANSWER False. Sole proprietorships are not separate legal entities
from their owners.
Q10: What is the primary tax disadvantage of a sole proprietorship?
ANSWER The owner must pay self-employment tax on all net business
income and receives no liability protection.
Q11: In a general partnership, who is liable for the debts of the
business?
ANSWER All general partners are jointly and severally liable for the
partnership's debts.
Q12: What is a key advantage of operating as a partnership over a C
corporation regarding taxation?
ANSWER Partnership income avoids double taxation because income
passes through to partners and is taxed only once on their individual
returns.
Q13: What is one disadvantage of operating as a partnership?
ANSWER Some tax-exempt fringe benefits, such as group-term life
insurance, are not available to partners.
,Q14: How is a single-member LLC taxed by default?
ANSWER As a disregarded entity (sole proprietorship), reporting
income on Schedule C of Form 1040.
Q15: How is a multi-member LLC taxed by default?
ANSWER As a partnership, filing Form 1065.
Q16: What tax year-end must an unincorporated entity with only one
owner adopt?
ANSWER The entity must adopt the same tax year-end as its owner.
Q17: What are the 'check-the-box' regulations?
ANSWER IRS rules allowing eligible entities to elect their federal tax
classification (e.g., corporation, partnership, or disregarded entity) by
filing Form 8832.
Q18: Can a single-member LLC elect to be treated as a corporation for
tax purposes?
ANSWER Yes, by filing Form 8832 (Entity Classification Election).
Q19: What is double taxation in the context of C corporations?
ANSWER Corporate earnings are taxed first at the corporate level and
again as dividends when distributed to shareholders.
Q20: Which entity types are NOT subject to double taxation?
ANSWER Partnerships, S corporations, and LLCs (pass-through
entities).
Q21: True or False: LLC members have more flexibility than corporate
shareholders to alter their legal arrangements with each other.
ANSWER True.
, Q22: What is the primary advantage of a C corporation over a
partnership when raising capital?
ANSWER A C corporation can issue multiple classes of stock and has
no limit on the number of shareholders, making capital-raising more
flexible.
Q23: What does 'pass-through taxation' mean?
ANSWER The entity itself pays no income tax; income, deductions,
credits, and losses flow through to the owners and are reported on their
individual returns.
Q24: What is a limited partner's liability limited to?
ANSWER The amount of capital contributed to the partnership.
Q25: In a limited partnership, who manages the business?
ANSWER The general partner(s); limited partners are passive
investors.
Q26: What tax form does a partnership file?
ANSWER Form 1065, U.S. Return of Partnership Income.
Q27: What tax form does an S corporation file?
ANSWER Form 1120-S, U.S. Income Tax Return for an S Corporation.
Q28: What tax form does a C corporation file?
ANSWER Form 1120, U.S. Corporation Income Tax Return.
Q29: What schedule reports a partner's allocable share of partnership
income, losses, and credits?
ANSWER Schedule K-1 (Form 1065).
