I'm studying for REG and I came across this question in my Roger book:
Which of the following is an advantage of forming a limited liability company (LLC) as opposed to a partnership?
a. The entity may avoid taxation.
b. The entity may have any number of owners.
c. The owner may participate in management while limiting personal liability.
d. The entity may make disproportionate allocations and distributions to members.
Choice "c" is correct. Unlike a general partnership, the owner of an LLC may participate in management while limiting personal liability. An LLC owner's liability is limited to their investment in the business plus their own individual negligence or malpractice. Even in a limited liability partnership (LLP), where partners may be protected against the malpractice of other partners (unless the malpractice occurred under their supervision), partners may still be held liable for the contractual debts of the business.
Choice "a" is incorrect. Both partnerships and LLCs are passthrough entities for federal income tax purposes, so entity-level taxation avoidance is not an advantage of an LLC as opposed to a partnership.
Choice "b" is incorrect. All states allow LLCs to have only one owner, whereas partnerships must have at least two. Either form of business organization may have any number of owners, plural.
Choice "d" is incorrect. Both partnerships and LLCs may make disproportionate allocations and distributions to members, so it is not an advantage an LLC has over a partnership.
I picked C as the correct answer, but I think B is also correct. This answer explanation seems to be a mistake. LLCs can have 1 or more which means they can have any number. Partnerships can have 2 or more, which means there is some restriction.