Which statement best defines a corporation?

• A. A separate legal entity in the view of other business, the law and by taxing authorities.
• B. Investors buy shares and own the company.
• C. Shareholders are typically individuals.
• D. Shareholders draw money via salaries or dividends.

Answer: (A)

A corporation is defined by its separate legal existence from its owners. It is treated as its own person by other businesses, the law, and tax authorities, which means it can own assets, enter into contracts, borrow money, sue and be sued in its own name. This separation is what allows owners to limit their personal liability—personal assets are generally protected from the corporation’s debts and lawsuits.

Owning shares describes how control and ownership are structured, but it doesn’t define the entity’s legal status. Shareholders can be individuals or institutions, not only people. And while shareholders may receive money, that money can come as dividends or, in some cases, as compensation for work via salaries—salary is for employment, not the return of ownership. The core point is the corporation’s separate legal personality, recognized by the law and tax authorities.