Which of the following is true of a corporation?

Which of the following is true of a corporation?

• A. Its shareholders are personally liable if it fails
• B. It is always owned by shareholders
• C. Its board of directors is personally liable if it fails
• D. It cannot sue another entity or be sued

Answer: (D)

A corporation is a separate legal entity from its owners, which is what gives it the power to act in its own name in legal matters. Because of that separation, shareholders have limited liability—their risk is limited to the amount they invested, not their personal assets. The board of directors isn’t personally liable for the corporation’s debts unless they personally guarantee something or breach fiduciary duties. A corporation can sue other entities and can be sued itself, since it exists as its own legal person. Among the statements given, the one that reflects this structure is that a corporation is owned by its shareholders (in the typical for-profit sense). The claim that it cannot sue is not true.

A corporation is a separate legal entity from its owners, which is what gives it the power to act in its own name in legal matters. Because of that separation, shareholders have limited liability—their risk is limited to the amount they invested, not their personal assets. The board of directors isn’t personally liable for the corporation’s debts unless they personally guarantee something or breach fiduciary duties. A corporation can sue other entities and can be sued itself, since it exists as its own legal person. Among the statements given, the one that reflects this structure is that a corporation is owned by its shareholders (in the typical for-profit sense). The claim that it cannot sue is not true.