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ARE 5.0 Practice Management Questions with
Correct Answers | Updated (100% Correct
Answers)
5 types of firms Answer: 1. Sole Proprietorship 2. General/Limited
Partnership 3. Corporation 4. LLC/LLP 5. Joint Venture
Sole Proprietorship - Key Features Answer: 1. One owner 2.
Requires only name/location and logo/license 3. Formation: Easy to
set up 4. Tax advantage: business expense/loos deducted from
gross business income 5. Disadvantage: Owner personally liable for
company debts/losses. Personal credit to establish credit/raise
capitol 6. Longevity: when owner retires firms closes.
General Partnership - Key Features Answer: 1. Two or more people
"partners", each partner brings different talent (managers must be
"member") 2. Share management/risk/profit 3. Formation:
partnership agreement. 4. Tax: income shared by partners and
reported on personal tax (disadvantage). 5. Disadvantage: Each
partner personally liable and liable for actions of others. Personal
assets are vulnerable. 6. Longevity: Typically partnership dissolved
when one leaves.
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, 2
Limited Partnership - Key Features Answer: 1. 1+ general partner,
1+ limited partner 2. Share risk/profit, but limited receive portion of
profit but no say in management 3. Similar to general otherwise
C Cooperation - Key Features Answer: 1. Association of individuals
as legal entity 2. 3 levels of people: Stockholder (owner with
shared), Director (elected by SH and act in their financial interest,
responsible for policy decisions), Officer (elected by D, manage day
to day) 3. Created in accordance with statutory requirement: Articles
of incorporation by lawyer and filed 4. Benefit: Legally independent
from shareholders. Each person only liable for $ invested. If sued
personal assets not at risk. Easier to raise capitol through stock sale.
5. Tax advantage : Generally taxed at lower rate than individuals, can
be savings over SP or Partnership. 6. Disadvantage: corp v
shareholders taxed separately, can be taxed twice. Initial cost to
establish. 7. Advantage: reduced liability and tax benefit. 8.
Longevity: Likely to survive founders.
S Corporation - Key Features Answer: 1. Similar to C corp but
allocates income and losses directly to shareholders in proportion to
% owned 2. tax: Shareholders report gain/loss on individual tax
return at individual rates. Avoids tax on corporate income. 3. S corp
status limited to small business "domestic company with no more
than 100 shareholders".
© 2025 All rights reserved
ARE 5.0 Practice Management Questions with
Correct Answers | Updated (100% Correct
Answers)
5 types of firms Answer: 1. Sole Proprietorship 2. General/Limited
Partnership 3. Corporation 4. LLC/LLP 5. Joint Venture
Sole Proprietorship - Key Features Answer: 1. One owner 2.
Requires only name/location and logo/license 3. Formation: Easy to
set up 4. Tax advantage: business expense/loos deducted from
gross business income 5. Disadvantage: Owner personally liable for
company debts/losses. Personal credit to establish credit/raise
capitol 6. Longevity: when owner retires firms closes.
General Partnership - Key Features Answer: 1. Two or more people
"partners", each partner brings different talent (managers must be
"member") 2. Share management/risk/profit 3. Formation:
partnership agreement. 4. Tax: income shared by partners and
reported on personal tax (disadvantage). 5. Disadvantage: Each
partner personally liable and liable for actions of others. Personal
assets are vulnerable. 6. Longevity: Typically partnership dissolved
when one leaves.
© 2025 All rights reserved
, 2
Limited Partnership - Key Features Answer: 1. 1+ general partner,
1+ limited partner 2. Share risk/profit, but limited receive portion of
profit but no say in management 3. Similar to general otherwise
C Cooperation - Key Features Answer: 1. Association of individuals
as legal entity 2. 3 levels of people: Stockholder (owner with
shared), Director (elected by SH and act in their financial interest,
responsible for policy decisions), Officer (elected by D, manage day
to day) 3. Created in accordance with statutory requirement: Articles
of incorporation by lawyer and filed 4. Benefit: Legally independent
from shareholders. Each person only liable for $ invested. If sued
personal assets not at risk. Easier to raise capitol through stock sale.
5. Tax advantage : Generally taxed at lower rate than individuals, can
be savings over SP or Partnership. 6. Disadvantage: corp v
shareholders taxed separately, can be taxed twice. Initial cost to
establish. 7. Advantage: reduced liability and tax benefit. 8.
Longevity: Likely to survive founders.
S Corporation - Key Features Answer: 1. Similar to C corp but
allocates income and losses directly to shareholders in proportion to
% owned 2. tax: Shareholders report gain/loss on individual tax
return at individual rates. Avoids tax on corporate income. 3. S corp
status limited to small business "domestic company with no more
than 100 shareholders".
© 2025 All rights reserved
