Business Structures and Legal Duties
This topic covers sole proprietorships, partnerships, corporations, LLCs, authority, fiduciary duties, shareholder rights, partner liability, and governance.
How to study for CPA REG
Build every answer around taxpayer type, tax year, filing obligation, basis, character, limitation, and procedural consequence.
Core concepts
Concept 1
Business Structures and Legal Duties questions test whether a CPA candidate can apply tax law, federal procedure, business law, or entity tax rules to a practical client fact pattern.
Exam cue: Identify the taxpayer type, tax year, transaction, return, authority, and dollar amount or deadline being tested.
Concept 2
The best REG answer usually identifies the taxpayer, transaction, year, tax basis, filing obligation, limitation, and procedural consequence before calculating.
Exam cue: Decide whether the task is inclusion, deduction, credit, basis, gain or loss, filing, penalty, representation, or legal liability.
Concept 3
Eliminate answers that skip statutory requirements, mix individual and entity rules, ignore basis, overlook filing deadlines, or choose a tax result without checking limitations.
Exam cue: Check limitations, character, timing, basis ordering, related-party rules, and whether the amount belongs on an individual or entity return.
Risk pitfalls and guardrails
Calculating taxable income before separating exclusions, adjustments, deductions, credits, and separately stated items.
Guardrail: Use a 15-second safety pause before finalizing your action.
Applying entity-level tax rules to owners, or owner-level limitations to the entity itself.
Guardrail: Use a 15-second safety pause before finalizing your action.
Ignoring statute of limitations, preparer penalty, Circular 230, estimated tax, or filing-status details that control the answer.
Guardrail: Use a 15-second safety pause before finalizing your action.
Memory anchors
Sole Proprietorship
A sole proprietorship is not legally separate from its owner for liability purposes.
General Partnership
A general partnership can arise from co-ownership of a business for profit.
Limited Partnership
A limited partnership has at least one general partner and at least one limited partner.
LLC
An LLC generally provides limited liability with flexible tax and governance options.
Corporation
A corporation is a separate legal entity owned by shareholders.
Fiduciary Duty
Fiduciary duties require loyalty, care, and good faith in covered relationships.
Shareholder
A shareholder owns equity in a corporation but generally is not liable for corporate debts.
Piercing the Veil
Piercing the veil may impose owner liability when the entity form is abused.
Partner Authority
A partner may bind the partnership for acts in the ordinary course of business.
Governance
Governance rules allocate authority among owners, managers, directors, and officers.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
Two people agree to carry on a consulting business as co-owners for profit without filing formation papers. What entity may arise?
A general partner signs an ordinary supply contract for the partnership. The supplier has no notice of any internal restriction on that partner's authority. Is the partnership bound?
Answer all questions to submit.
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Move forward only after this module is stable.
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