North Carolina Building Contractor License Practice Exam

What type of business requires more formal structure and paperwork than a sole proprietorship?

1. Partnership

2. Corporation

3. LLC

4. Joint venture

The correct answer is: Corporation

The correct answer is a corporation, as it necessitates a more formal structure and involves greater regulatory compliance compared to a sole proprietorship. Corporations are separate legal entities that require a more complex setup, including drafting articles of incorporation, creating bylaws, holding regular meetings, and maintaining minutes. They also have to adhere to specific state and federal regulations, such as filing annual reports and paying various taxes. This structured approach affords corporations certain protections and advantages, such as limited liability for its owners (shareholders) and the ability to raise capital through the sale of stock. The formal requirements ensure transparency and accountability, which are critical for larger enterprises. In contrast, while partnerships and limited liability companies (LLCs) also require some formalities, they tend to have less stringent requirements than corporations. A joint venture, on the other hand, is typically a temporary partnership for a specific project and does not require the same level of structure or paperwork.