Most candidates think the Series 66 exam tests their ability to define an S-Corp versus an LLC. That’s a trap. The real test is whether you can apply the Uniform Prudent Investor Act (UPIA) to a trust’s portfolio or identify the specific suitability conflicts inherent in a general partnership. Memorizing definitions will fail you; mastering your advisory role is what earns a pass.
The Series 66 exam tests your judgment on the suitability, taxation, and liability of business entities (S-Corps, LLCs, Partnerships) and trusts. Success requires applying these concepts to client scenarios under state and federal law, focusing on the investment adviser's fiduciary duty rather than simple memorization of entity characteristics.
Key facts
- Official Body
- NASAA (exam administered by FINRA)
- Exam Format
- 100 scored multiple-choice questions
- Passing Score
- 73% (at least 73 correct answers)
- Exam Duration
- 150 minutes (2.5 hours)
- Registration Fee
- $177 (verify current fee with FINRA)
- Recommended Study
- 60 to 90 hours for most candidates
What Business Entities Are Tested on the Series 66 Exam?
The Series 66 exam requires you to advise clients based on their business structure, which dictates their liability, taxation, and investment suitability. The test moves beyond simple definitions to assess your judgment in real-world scenarios. You must understand why a client has a specific entity and how that structure impacts your recommendations as an investment adviser representative.
Sole Proprietorships
This is the simplest structure, where one individual is the business. There is no legal distinction between the owner and the company, which means the owner has unlimited personal liability for all business debts. For the exam, this means any investment recommendation must consider the client's combined personal and business risk profile, as there is no corporate veil to protect personal assets.
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Partnerships
Partnerships involve two or more co-owners. The Series 66 distinguishes between a few key types.
General Partnerships
In a general partnership, all partners typically share in management and profits. Critically, they also share unlimited joint and several liability. This means each partner is personally liable for the partnership's entire debt, even if another partner created it. Income and losses are passed through to the partners to be reported on their personal tax returns.Limited Partnerships (LPs)
LPs have at least one general partner (GP) and one or more limited partners (LPs). The GP manages the business and has unlimited liability. The LPs are passive investors whose liability is limited to their capital contribution. The exam will test your understanding of this liability distinction and the passive role of the limited partners.Limited Liability Partnerships (LLPs)
Often used by professionals like attorneys or accountants, an LLP provides limited liability protection for all partners from the malpractice or negligence of other partners. This is a key distinction from a general partnership. Taxation remains pass-through.Limited Liability Companies (LLCs)
An LLC combines the liability protection of a corporation with the tax flexibility of a partnership. Owners are called members. The key exam concept for LLCs is their tax flexibility. By default, a multi-member LLC is taxed like a partnership, but it can elect to be taxed as an S-Corp or a C-Corp. This election is a strategic choice that dramatically changes the client's financial picture, impacting everything from self-employment tax to how distributions are treated.
S Corporations (S-Corps)
An S-Corp is a corporation that elects for pass-through taxation under Subchapter S of the Internal Revenue Code, avoiding the double taxation of C-Corps. To qualify, it must have no more than 100 shareholders, one class of stock, and meet other IRS criteria. The exam often focuses on how S-Corp owners can receive a "reasonable salary" (subject to payroll taxes) and take additional profits as distributions (not subject to self-employment taxes). You must also understand that a shareholder's ability to deduct losses is limited to their stock and loan basis.
C Corporations (C-Corps)
A C-Corp is a separate legal and taxable entity from its owners. Its main drawback is double taxation: the corporation pays tax on its profits (Form 1120), and shareholders pay tax again on any dividends they receive. Despite this, C-Corps are ideal for raising significant capital or retaining earnings for growth. Exam questions may involve the tax treatment of qualified dividends or the suitability of a C-Corp for a business planning a future IPO.
Business Entity Comparison Table
| Feature | Sole Proprietorship | General Partnership | Limited Partnership (LP) | LLC | S-Corp | C-Corp |
|---|---|---|---|---|---|---|
| Liability | Unlimited personal | Unlimited personal | GP: Unlimited; LP: Limited | Limited for all members | Limited for shareholders | Limited for shareholders |
| Taxation | Pass-through | Pass-through | Pass-through | Flexible (elected) | Pass-through | Double taxation |
| Owners | 1 individual | 2+ partners | 1+ GP, 1+ LP | 1+ members | ≤ 100 shareholders | Unlimited shareholders |
| Key Feature | Simplicity | Shared control | Passive investors | Flexibility & protection | Avoids double tax | Capital access |
You can sharpen your ability to distinguish these entities with VoraPrep's adaptive Series 66 practice questions, which target your specific weak areas.
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How Are Trusts and Estate Planning Tested on the Series 66?
Trusts are a major component of the "Laws, Regulations, and Ethics" section of the exam. You are tested not on drafting trusts, but on advising clients and trustees in a manner consistent with the trust's purpose and your fiduciary duty under the Uniform Prudent Investor Act (UPIA). This act requires you to manage trust assets based on a total portfolio strategy, considering the risk and return objectives of the trust as a whole.
Key Trust Classifications
Revocable vs. Irrevocable
- Revocable Trust: The grantor can change or cancel it at any time. Assets are still considered part of the grantor's estate for tax purposes. Its primary purpose is to avoid probate.
- Irrevocable Trust: The grantor permanently gives up control. Assets are generally removed from the grantor's taxable estate, offering potential tax savings and creditor protection.
Living vs. Testamentary
- Living (Inter Vivos) Trust: Created and funded during the grantor's lifetime.
- Testamentary Trust: Created by a will and funded only after the grantor's death.
Other Important Trust Types
- Simple Trust: Must distribute all income earned each year. It cannot distribute principal.
- Complex Trust: Can accumulate income, distribute principal, and make charitable donations.
- Bypass Trust (Credit Shelter Trust): Allows a married couple to maximize their individual estate tax exemptions. At the first spouse's death, an amount up to the exemption limit is placed in the trust for the surviving spouse's benefit, but it is not included in the surviving spouse's estate.
- QTIP Trust (Qualified Terminable Interest Property): Allows a grantor to provide for a surviving spouse while maintaining control over who receives the assets after the surviving spouse's death. It qualifies for the unlimited marital deduction.
Custodial Accounts: UTMA and UGMA
Often tested alongside trusts, the Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) allow adults to give assets to a minor. The assets are managed by a custodian until the minor reaches the age of majority. For the exam, know that these are simpler and less flexible than trusts, the assets legally belong to the minor, and earnings are typically taxed at the minor's rate (subject to "kiddie tax" rules).
Understanding Estate and Gift Tax Rules
The exam expects you to know the core tools of estate planning. Note that the exam will use current or hypothetical figures; it's the concept, not a specific year's number, that matters most.
- Federal Estate Tax Exclusion: For 2024, an individual can transfer up to $13.61 million at death without incurring federal estate tax. This amount is indexed annually for inflation.
- Unlimited Marital Deduction: An individual can transfer an unlimited amount of assets to their U.S. citizen spouse, during life or at death, free of estate or gift tax.
- Annual Gift Tax Exclusion: For 2024, an individual can give up to $18,000 to any number of individuals per year without filing a gift tax return or using their lifetime exclusion.
David, a widower, dies in a year when the estate tax exclusion is $13.61 million. His gross estate is $15,000,000. His will leaves $400,000 to charity. His estate incurs $200,000 in administrative expenses.
Step 1: Calculate the Gross Estate. David's gross estate is $15,000,000. Step 2: Determine Allowable Deductions.- Charitable deduction: $400,000
- Administrative expenses: $200,000
Total deductions = $600,000
Step 3: Calculate the Taxable Estate. Taxable Estate = Gross Estate - Deductions Taxable Estate = $15,000,000 - $600,000 = $14,400,000 Step 4: Apply the Estate Tax Exclusion. Amount Subject to Tax = Taxable Estate - Exclusion Amount Subject to Tax = $14,400,000 - $13,610,000 = $790,000 The tempting wrong answer is to subtract the exclusion from the gross estate before taking deductions. The exam requires you to know the correct order: Gross Estate -> Deductions -> Taxable Estate -> Exclusion.For a deeper dive into the exam blueprint, see our complete Series 66 study guide for 2026.
Weekly Drill: From Definition to Decision
To master this material, you must practice making judgments. Use this drill weekly to turn abstract knowledge into exam-ready application.
Step 1: Create a Client Profile
Invent a client. Be specific.
- Example: "Maria, 45, is a successful graphic designer operating as a single-member LLC. She has $500k in a brokerage account and wants to start saving for her two young children's college education while minimizing taxes."
Step 2: Identify the Core Problem
Based on the profile, what is the key issue?
- Example: "Maria's LLC structure offers liability protection, but as a single member, she's paying self-employment tax on all profits. She also needs a tax-efficient vehicle for her children's education."
Step 3: Propose and Justify a Solution
Recommend a specific action and explain why, citing the rules.
- Example: "I would advise Maria to consider electing S-Corp taxation for her LLC. This would allow her to pay herself a reasonable salary and take the remaining profits as distributions, saving on self-employment tax. For her children, establishing UTMA accounts would be a simple way to begin gifting assets for their education."
This exercise forces you to think like an adviser, which is exactly what the Series 66 demands. VoraPrep's complete course builds this skill with over 1,500 practice questions and Vory, your 24/7 tutor, who can walk you through the logic of any scenario.