National Occupational Competency Testing Institute (NOCTI) Business Practice Exam

Which entity is formed through a special written agreement by one or more individuals or entities?

1. Corporation

2. Nonprofit corporation

3. Limited liability company

4. Joint venture

The correct answer is: Limited liability company

The entity formed through a special written agreement by one or more individuals or entities is a limited liability company (LLC). An LLC is specifically designed to provide the benefits of both a corporation and a partnership. It protects its owners, known as members, from personal liability for the debts and obligations of the business, similar to a corporation. However, it is more flexible in terms of management structure and taxation, allowing for pass-through taxation, where the business income is reported on the personal tax returns of the owners. The formation of an LLC requires an operating agreement, which is the special written agreement that outlines the structure, management, and operational procedures of the company. This agreement is crucial as it defines the relationships between members and their responsibilities, and sets forth the procedures for making decisions within the company. Other options, while they may also involve agreements or formation documents, do not exclusively require a special written agreement in the same context as an LLC. For instance, a corporation is formed by filing articles of incorporation and typically does not require a separate written agreement among the owners beyond statutory requirements. A nonprofit corporation, similarly, is incorporated under specific laws and has its own filing requirements, separate from the informal agreements that may exist among its founders. A joint venture is