Future Business Leaders of America (FBLA) Business Law Practice Exam

What is indicated by the term limited liability company (LLC)?

1. An entity with legal authority distinct from its owners

2. A business without any limitations on liability

3. A type of investment fund

4. A non-profit organization

The correct answer is: An entity with legal authority distinct from its owners

The term "limited liability company" (LLC) refers to a type of business structure that combines the characteristics of a corporation and a partnership. The key aspect of an LLC is that it is considered a separate legal entity distinct from its owners, referred to as members. This separation means that the personal assets of the members are generally protected from the liabilities and debts incurred by the LLC. In other words, the owners are not personally liable for the debts and obligations of the business. This feature of limited liability encourages individuals to invest in business ventures without the fear of losing their personal assets. Other choices do not accurately reflect the definition of an LLC. A business without any limitations on liability does not align with the core characteristic of an LLC, which is designed specifically to provide limited liability protection. A type of investment fund pertains to pooling resources for investment purposes, not to the legal structure of a company. Likewise, a non-profit organization has different purposes and regulations compared to an LLC, which is typically structured for profit-making. Thus, the answer correctly highlights the distinct legal status that defines an LLC.