Charlie, Lucy, and Sally opened a restaurant and elected to file paperwork to create and organize their restaurant as an LLC. All of the following are advantages of the LLC form of business for these three members except the following:

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To tackle this question, I will evaluate each proposed advantage of forming an LLC for Charlie, Lucy, and Sally's restaurant.
Option 1: 'the three members can have their LLC taxed as a disregarded entity.' A disregarded entity status is only available to single-member LLCs. When there are multiple members, the default tax treatment is either partnership taxation or corporate taxation (if the LLC elects to be taxed as a corporation). Therefore, stating that a multi-member LLC can be taxed as a disregarded entity is inaccurately presenting an advantage, making this option untenable for a three-member LLC.
Option 2: 'the three members can choose to have their LLC taxed as a partnership or as an association taxed as a corporation.' This reflects the typical flexibility of an LLC in terms of tax classification: it can default to partnership taxation if there are multiple members, or it can elect to be taxed as a corporation. This is indeed a valid advantage because it allows tax planning and potential tax-rate optimization for the group.
Option 3: 'the LLC Operating Agreement can define the responsibilities of the owners (e.g., whether the owner is a day-to-day manager or a passive investor).' An operating agreement is a strong governance tool that spells out roles and responsibilities, which helps prevent disputes and clarifies management structure. This is a genuine advantage of the LLC form.
Option 4: 'the LLC operating agreement can set forth the voting rights of each member.' Similar to the previous option, the operating agreement can allocate voting power and procedures, providing clear decision-making rules. This is another valid advantage of choosing an LLC and adopting an operating agreement.
In sum, every option except Option 1 describes a legitimate advantage of an LLC for a multi-member ownership group. The incorrect statement is the notion that a three-member LLC can be taxed as a disregarded entity, which conflicts with the standard tax treatment rules for multi-member LLCs.

ACCT:4300:0001 Fall25 Examination #3 (final exam) - Accounting Ethics and Law- Requires Respondus LockDown Browser

Charlie, Lucy, and Sally opened a restaurant and elected to file paperwork to create and organize their restaurant as an LLC. All of the following are advantages of the LLC form of business for these three members except the following:

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