This synthesis ties together the Client Types topics to help you quickly compare entity characteristics and match client types to exam questions.
Pass-Through vs. Entity-Level Taxation Summary
| Entity Type | Taxation | Liability | Key Characteristic |
|---|---|---|---|
| Sole proprietorship | Pass-through | Unlimited | Simplest structure |
| General partnership | Pass-through | Unlimited (all partners) | Joint management |
| Limited partnership | Pass-through | General partner (GP) unlimited; limited partner (LP) limited | LP cannot manage |
| Limited liability company (LLC) | Pass-through (default) | Limited (all members) | Flexible; can elect corp taxation |
| S-Corporation | Pass-through | Limited | Max 100 U.S. shareholders; 1 stock class |
| C-Corporation | Double taxation | Limited | Unlimited shareholders; multiple stock classes |
Exam Tip: Gotchas
- When a question asks which entity provides BOTH liability protection AND pass-through taxation, the answers are LLC and S-corporation. General partnerships have pass-through taxation but no liability protection. C-corporations have liability protection but double taxation.
Investor Classification Thresholds (Cross-Reference)
Accredited Investor, Qualified Client, and Qualified Purchaser are testable but live with the rules that define them, not with client-type classification. See:
- Accredited Investor (the income/net-worth threshold for Regulation D private placements): taught in the Securities Issuer Regulation unit (Reg D context) and the Private Funds unit (3(c)(1) context)
- Qualified Client (the higher income/net-worth threshold an adviser must meet before charging performance-based fees): taught in the Investment Adviser Representative Regulation unit (performance-based fees and IAR de minimis)
- Qualified Purchaser (the $5M-investable-assets threshold under the Investment Company Act of 1940): taught in the Private Funds unit (3(c)(7) context)