Which business form is a legal entity separate from its owners, providing limited liability to its shareholders?

• A. Sole Proprietorship
• B. Partnership
• C. Corporation
• D. LLC

Answer: (C)

The key idea here is that a corporation stands apart as a separate legal entity from its owners. That separation means the business itself can own assets, enter into contracts, sue or be sued, and most importantly, protect its owners from personal liability. Shareholders risk only the money they invested in the stock, not their personal assets, which is the essence of limited liability.

Sole proprietorships and general partnerships do not create this kind of separate legal person, so owners can be personally liable for debts and obligations. An LLC also provides limited liability and a separate entity, but ownership is through members rather than shareholders, which is why the term “shareholders” points to a corporation.