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

Which term refers to a legal entity created to conduct business activities?

1. Corporation

2. Partnership

3. Limited liability company

4. Sole proprietorship

The correct answer is: Corporation

The term that refers to a legal entity created to conduct business activities is a corporation. A corporation is a distinct legal entity that is separate from its owners, known as shareholders. This separation provides limited liability protection to the owners, meaning their personal assets generally cannot be used to satisfy the corporation's debts and liabilities. Corporations have the ability to enter into contracts, sue and be sued, and own property in their own name. This structure allows for continuity of existence—meaning the corporation can continue to exist independently of changes in ownership or management. While partnerships, limited liability companies (LLCs), and sole proprietorships are also forms of business entities, they do not provide the same level of separation and liability protection as a corporation. Partnerships involve two or more individuals and may not offer limited liability to all partners, while LLCs combine elements of both partnerships and corporations but operate under different regulatory structures. Sole proprietorships are the simplest form of business entity, where there is no legal separation between the business and the owner; thus, the owner is personally liable for all debts and obligations.