Future Business Leaders of America (FBLA) Agribusiness Practice Test

What alternative name is used for a close corporation?

1. S-corporation

2. C-corporation

3. Professional corporation

4. Limited liability corporation

The correct answer is: S-corporation

A close corporation is often referred to as a "S-corporation," particularly when it opts for S corporation tax status under the Internal Revenue Code. This structure allows for pass-through taxation, meaning that the corporation's income is taxed at the individual level rather than at the corporate level. This is beneficial for small businesses as it can help avoid double taxation that traditional C-corporations face. In close corporations, ownership is typically limited to a small number of shareholders, and the transfer of shares is often restricted, allowing for greater control and flexibility among owners. The S-corporation status complements this structure because it maintains more restrictions on ownership while providing significant tax advantages. The other options represent different types of corporate entities but do not capture the essence of a close corporation. For example, a C-corporation has no limits on the number of shareholders and is subject to corporate taxation, differing fundamentally in structure and taxation from a close corporation. A professional corporation usually pertains to specific licensed professions, while a limited liability corporation (LLC) offers a different legal structure altogether, focusing more on liability protection and operational flexibility than traditional corporate characteristics.