An entrepreneur plans to form a business that will incur losses for the first 3 years. They want to deduct these losses against their other active income. They also want limited liability. Which entity structure is most appropriate?

Answer options:

C Corporation

S Corporation

Limited Partnership (as Limited Partner)

Sole Proprietorship

How to approach this question

Match requirements: Flow-through losses + Limited Liability = S Corp or LLC (taxed as partnership).

Full Answer

B.S Corporation✓ Correct

S Corporation allows losses to flow through to the shareholder (deductible if material participation and basis exist) and provides limited liability protection.

Common mistakes

Choosing LP (passive loss issues) or Sole Prop (liability issues).

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