Question

you are forming a new company that delivers food to students across college campuses. you have a number of partners, but your primary goals are to avoid personal liability and double taxation. you want to pay each of the partners based on the percentage of the company that they own. you could accomplish this by forming a(n):

d.
s corporation.

b.
partnership.

a.
c corporation.

c.
llc

Explanation:

Analyze the business goals

The primary goals are to:

1. Avoid personal liability (owners' personal assets are protected).
2. Avoid Double Taxation (profits should pass through directly to owners' personal tax returns).
3. Pay partners based on their percentage of ownership.

Evaluate the options

• Partnership: Avoids Double Taxation but does not provide general personal liability protection for all partners (general partners have unlimited personal liability).
• C corporation: Provides limited liability but is subject to Double Taxation (taxed at both the corporate level and individual level on dividends).
• LLC (Limited Liability Company): Provides limited liability and avoids Double Taxation through pass-through taxation. However, profits do not strictly have to be distributed based on ownership percentage (distribution can be flexible).
• S corporation: Provides limited liability, avoids Double Taxation (pass-through taxation), and strictly requires that profits and losses be allocated proportionally to each owner's percentage of ownership (one class of stock constraint).

Determine the best fit

While both an LLC and an S corporation offer limited liability and pass-through taxation, an S corporation strictly enforces distributions based on the exact percentage of ownership. Therefore, an S corporation is the most precise match for a business structure that accomplishes all three goals.

Answer:

• d. S corporation.
• b. Partnership.
• a. C corporation.
• c. LLC (Correct answer)