Entity Selection Challenge: Test Your Knowledge to Make the Right Entity Choice for Your Small Business

Select the Right Entity

Welcome to the small business entity selection Quiz! This quiz will test your knowledge of the pros and cons of various entity options. Are you ready to put your knowledge of entities to the test?

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1. Which of the following is true about a Limited Liability Company (LLC)?

All members have personal liability protection

All members are entitled to distributions based upon the number of shares they own

All members participate in business decisions

Managing members have greater exposure to personal liability than non-managing members

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2. What is the main advantage of selecting a sole proprietorship as a legal entity for a small business?

Unlimited access to funding sources, such as loans or investors

Simplicity and ease of operation

They don’t require the owners to pay income taxes on profits

Separation of personal and business finances

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3. Which of the following is a disadvantage of selecting a partnership as a legal entity for a small business?

Unlimited liability for partners

High formation costs

Difficulty in obtaining funding

Limited control for partners

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4. What is the main disadvantage of selecting a corporation as a legal entity for a small business?

High formation costs

Limited liability protection

Complexity in management and ownership

Inability to issue stock

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5. What is the main advantage of selecting a Limited Liability Company (LLC) as a legal entity for a small business?

Simplified taxation

Flexibility in management and ownership

Ability to issue stock

Unlimited liability protection

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6. Which of the following is NOT one of the six characteristics that define a C Corporation?

Limited liability

Centralized management

Asset protection

Continuity of life

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7. Which of the following is a characteristic of a C Corporation as a legal entity for a small business?

It is taxed as a pass-through

Flexibility of ownership structure

No limit on the number of shareholders

It is not subject to double taxation

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8. Which of the following is a characteristic of a Limited Liability Partnership (LLP) as a legal entity for a small business?

It provides unlimited liability protection

It has a single owner

It is taxed like a corporation

It provides limited liability protection for non-general partners

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9. Which entity do you NOT have to register with the Secretary of State?

Sole proprietor

Partnership

General partnership

C corporation

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10. Which is the difference between an S corporation and a C corporation?

S corporations are limited in the number of shareholders they can have, while a C corporation has no limits

S corporations require shareholders to pay income tax on profits, while a C corporation pays income taxes on profits and shareholder pay taxes on dividends

S corporations can only issue common stock while C corporations can issue both common and preferred stock

All of the above