What defines a corporation (C corporation)?

• A. A business owned by shareholders
• B. A legal entity separate from its owners
• C. A type of sole proprietorship
• D. A partnership of five or more individuals

Answer: (B)

A corporation, particularly a C corporation, is defined as a legal entity that is separate from its owners. This means that the corporation itself can enter into contracts, sue or be sued, and is responsible for its own liabilities independently of its owners or shareholders. This separation is a key characteristic of a corporation, as it provides limited liability to the owners, meaning that their personal assets are generally protected from claims against the corporation.

While it is true that a corporation is often owned by shareholders, that aspect alone does not fully encapsulate the nature of a corporation. Additionally, a corporation is distinctly different from a sole proprietorship and a partnership, as these forms of business do not provide the same level of legal separation and liability protection. Thus, the defining feature of a C corporation is its status as a separate legal entity, making the correct answer the identification of this legal distinction.