Future Business Leaders of America (FBLA) Business Law Practice Exam

What is defined as an entity with a legal authority to act as a single person distinct from its owners?

1. Corporation

2. Partnership

3. Sole proprietorship

4. Trust

The correct answer is: Corporation

A corporation is an entity that holds legal authority to act as a single person distinct from its owners, who are known as shareholders. This characteristic is fundamental to what defines a corporation: it can own property, enter contracts, sue, and be sued in its own name, separate from the individuals who own it. This separation provides limited liability protection to its owners, meaning that their personal assets are generally protected from the corporation's debts and liabilities. In contrast, a partnership involves two or more individuals who share ownership and management of a business, but does not provide the same legal separation or limited liability as a corporation. A sole proprietorship is owned and operated by a single individual who is personally liable for all business obligations. Lastly, a trust is a legal arrangement where one party holds property for the benefit of another, but it is not categorized as an entity that acts independently like a corporation. Thus, the defining characteristic of a corporation as a separate legal entity underpins why this answer is correct.