Which statement about an LLC is true?

Which statement about an LLC is true?

• A. Is taxed as a corporation and pays corporate tax
• B. Members are personally liable for all debts
• C. Combines the advantages of a partnership and a corporation. Profits and losses are passed through to members' personal federal tax returns.
• D. It cannot be used by architects.

Answer: (C)

An LLC combines liability protection with flexible tax treatment. It shields owners from personal responsibility for business debts and liabilities, similar to a corporation, while allowing profits and losses to pass through to the owners’ personal tax returns, so the entity itself is not taxed at the entity level (unless an election is made to be taxed as a corporation). This dual nature—limited liability plus pass-through taxation—is what makes the statement describing an LLC as combining the advantages of a partnership and a corporation, with profits and losses passed through to members’ personal federal returns, the correct description. The other statements don’t fit the typical understanding: an LLC is not automatically taxed as a corporation (that’s an election, not the default), members are not personally liable for all debts in normal operation (there are limits to liability), and architects can form LLCs just as professionals in other fields can.

An LLC combines liability protection with flexible tax treatment. It shields owners from personal responsibility for business debts and liabilities, similar to a corporation, while allowing profits and losses to pass through to the owners’ personal tax returns, so the entity itself is not taxed at the entity level (unless an election is made to be taxed as a corporation). This dual nature—limited liability plus pass-through taxation—is what makes the statement describing an LLC as combining the advantages of a partnership and a corporation, with profits and losses passed through to members’ personal federal returns, the correct description.

The other statements don’t fit the typical understanding: an LLC is not automatically taxed as a corporation (that’s an election, not the default), members are not personally liable for all debts in normal operation (there are limits to liability), and architects can form LLCs just as professionals in other fields can.