. Is not a separate legal entity in most states b. Requires that stockholders be personally liable for the debts of the business c. Is owned by its stockholders d. Terminates when one of its original stockholders dies
The Correct Answer and Explanation is:
The correct answer is c. Is owned by its stockholders.
Explanation:
A corporation is a distinct legal entity that is separate from its owners, and it is primarily owned by its stockholders (also referred to as shareholders). Stockholders own shares of the corporation, and their ownership is determined by the number of shares they hold. These shares represent their stake in the corporation, and stockholders can influence corporate decisions by voting on major issues (like electing the board of directors) during annual meetings.
Let’s break down the other options:
- a. Is not a separate legal entity in most states: This is incorrect. A corporation is recognized as a separate legal entity in all states. This means that the corporation can enter into contracts, own property, and be sued in its own name. This separate legal status shields stockholders from personal liability for the corporation’s debts and obligations.
- b. Requires that stockholders be personally liable for the debts of the business: This is also incorrect. One of the primary features of a corporation is the principle of limited liability. Stockholders are not personally liable for the corporation’s debts or liabilities. Their risk is limited to the amount they have invested in the company, which makes corporations an attractive business structure for investors.
- d. Terminates when one of its original stockholders dies: This is incorrect. A corporation has perpetual existence, meaning it does not end when a stockholder dies or when ownership changes. The corporation continues to operate regardless of changes in its ownership, allowing it to exist indefinitely unless formally dissolved.
Thus, the key takeaway is that a corporation is owned by its stockholders, who hold shares representing their ownership stake in the business.
