Which are attributes of a conventional corporation? (Select all that apply)
Multiple select question.
It has unlimited liability.
it is a legal entity.
Corporate liability is separate from owners.
it is state chartered.
The Correct Answer and Explanation is :
The correct attributes of a conventional corporation are:
- It is a legal entity.
- Corporate liability is separate from owners.
- It is state chartered.
Explanation:
- It is a legal entity: A conventional corporation is considered a separate legal entity from its owners. This means it can enter into contracts, sue, and be sued in its own name. The corporation exists independently of the individuals who own or manage it.
- Corporate liability is separate from owners: One of the most significant features of a corporation is the concept of limited liability. The corporation itself, not the individual owners (shareholders), is responsible for its debts and obligations. Shareholders’ personal assets are protected, and their liability is generally limited to the amount they have invested in the corporation.
- It is state chartered: Corporations are formed under state law and must obtain a charter from a state in the U.S. to be legally recognized as a corporation. Each state has its own laws and requirements for incorporating a business, which may include filing articles of incorporation and paying fees.
Incorrect Attribute:
- It has unlimited liability: This statement is incorrect. Unlike sole proprietorships or partnerships, where the owners may be personally liable for the business’s debts, a corporation typically provides limited liability to its shareholders. This means shareholders are not personally responsible for the debts or liabilities of the corporation beyond the value of their investment in it.
In summary, a conventional corporation offers limited liability to its owners, is considered a separate legal entity, and must be chartered by the state in which it operates. These features distinguish it from other business forms, such as sole proprietorships or partnerships, which do not provide such protections to their owners.