Entrepreneurship and Small Business (ESB) Certification Practice Exam

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Prepare for the Entrepreneurship and Small Business Exam with quizzes, flashcards, and detailed question explanations. Sharpen your knowledge and skills to excel in your certification journey!

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Which type of corporation is suitable for companies with a limited number of shareholders?

C Corporation
S Corporation
L.L.C.
Non Profit Corporation

The correct answer is: C Corporation

The suitable type of corporation for companies with a limited number of shareholders is the S Corporation. An S Corporation is specifically designed to limit the number of allowable shareholders to a maximum of 100, making it ideal for smaller businesses or family-owned enterprises. This structure also allows for pass-through taxation, meaning that the income is taxed at the individual level rather than at the corporate level, which can be advantageous for shareholders. C Corporations, while allowing for potentially unlimited shareholders, are typically more suited for larger businesses that are looking to raise capital through the issuance of stocks to a broad investor base. Limited Liability Companies (L.L.C.s) generally cater to those who desire flexible management structures and pass-through taxation but do not typically function as traditional corporations. Non-Profit Corporations serve entirely different purposes, focusing on charitable activities, and do not distribute profits to shareholders, thereby being unsuitable for shareholder-focused needs.