Which statement about corporations is true?

Which statement about corporations is true?

• A. It is a separate legal entity with limited liability.
• B. It is owned by a single individual with unlimited liability.
• C. It cannot issue stock.
• D. It exists only to avoid any taxation.

Answer: (A)

In business structures, a key idea is how a company is treated legally and how liability works. A corporation is a separate legal entity from its owners, and the owners have limited liability. This means the corporation can own assets, sign contracts, sue and be sued in its own name, and the owners’ personal assets are protected from the company’s debts beyond their investment. The other scenario—being owned by a single individual with unlimited liability—describes a sole proprietorship, not a corporation, because there’s no separate legal identity and the owner can be personally liable for all debts. Corporations can issue stock to raise capital, so saying they cannot issue stock is incorrect. And the idea that they exist only to avoid taxation isn’t accurate; corporations pay taxes on profits, and dividends can be taxed to shareholders as well, though some structures and tax strategies can influence overall tax burdens. The true statement captures the fundamental setup: a corporation is a separate legal entity with limited liability.

In business structures, a key idea is how a company is treated legally and how liability works. A corporation is a separate legal entity from its owners, and the owners have limited liability. This means the corporation can own assets, sign contracts, sue and be sued in its own name, and the owners’ personal assets are protected from the company’s debts beyond their investment. The other scenario—being owned by a single individual with unlimited liability—describes a sole proprietorship, not a corporation, because there’s no separate legal identity and the owner can be personally liable for all debts. Corporations can issue stock to raise capital, so saying they cannot issue stock is incorrect. And the idea that they exist only to avoid taxation isn’t accurate; corporations pay taxes on profits, and dividends can be taxed to shareholders as well, though some structures and tax strategies can influence overall tax burdens. The true statement captures the fundamental setup: a corporation is a separate legal entity with limited liability.