The NCIDQ IDPX exam tests the designer’s understanding of professional practice, including the benefits of business structures like incorporation. Incorporating a design firm means forming a legal entity (e.g., a corporation) separate from its owners (principals).

Option A (Limit liability of the principals):This is the correct choice. The primary benefit of incorporation is that it creates a separate legal entity, limiting the personal liability of the principals (owners). In a corporation, the principals are generally not personally responsible for the company’s debts or legal liabilities (e.g., lawsuits), protecting their personal assets. This is a key reason for incorporation.

Option B (Shelter company’s profits from taxes):While incorporation may offer some tax advantages (e.g., different tax rates or deductions), “sheltering profits” implies tax avoidance, which is not a primary or legitimate benefit. Tax benefits are secondary to liability protection.

Option C (Enhance company availability to credit):Incorporation may improve access to credit because the company is a separate entity with its own credit history, but this is not the primary benefit. Lenders may still require personal guarantees from principals, especially for small firms.

Option D (Protect company from negligence suits):Incorporation does not protect the company itself from negligence suits; the company can still be sued for negligence. However, it does protect the principals’ personal assets, which aligns with Option A, not D.

Verified Answer from Official Source:

The correct answer is verified from NCIDQ’s official study materials on professional practice and business structures.

“The primary benefit of incorporating a design firm is to limit the liability of the principals, protecting their personal assets from the company’s legal and financial obligations.” (NCIDQ IDPX Study Guide, Professional Practice Section)

The NCIDQ IDPX Study Guide identifies limiting the liability of the principals as the primary benefit of incorporation, as it separates the company’s liabilities from the owners’ personal assets. This aligns with Option A, making it the correct answer.

Objectives:

Understand the benefits of incorporating a design firm (NCIDQ IDPX Objective: Professional Practice).

Apply business structure knowledge to manage liability (NCIDQ IDPX Objective: Professional Practice).