North Carolina General Contractor Exam — All Questions
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A construction business is organized as a corporation. If the corporation is sued and cannot pay a judgment, what is generally at risk?
- a.The personal homes and bank accounts of every shareholder
- b.The personal assets of the highest-paid officer only
- c.The assets owned by the corporation itself, not the shareholders' personal assets✓
- d.Nothing, because corporations cannot be sued
A corporation is a separate legal entity from its owners (shareholders). This separation creates limited liability: creditors and judgments generally reach only the assets the corporation owns, and shareholders risk losing only what they invested — not their personal homes or savings. That protection can be lost only in unusual cases such as fraud or 'piercing the corporate veil.'
In a general partnership, how are the general partners liable for the debts of the business?
- a.Only up to the amount each partner originally invested
- b.Personally and jointly liable for all partnership debts✓
- c.Not liable at all, because the partnership pays its own debts
- d.Liable only for debts they personally signed for
A general partnership does not shield its owners. Each general partner has unlimited personal liability and is jointly liable for the partnership's debts and obligations — a creditor can pursue any partner's personal assets. This unlimited exposure is a key reason many contractors instead form an LLC or corporation, which provide limited liability.
Which statement best describes a limited liability company (LLC) for a contracting business?
- a.It gives owners limited liability while normally allowing profits to pass through to owners' personal tax returns✓
- b.It requires the business to pay corporate income tax and forbids pass-through taxation
- c.It makes every member personally liable for all company debts
- d.It can be owned by only one person and never by a group
An LLC combines the liability protection of a corporation with the tax flexibility of a partnership. Members are generally shielded from personal liability for business debts, and by default the LLC's profits and losses 'pass through' to the members' individual tax returns, avoiding the double taxation of a standard C corporation. An LLC may have one member or many.