What term describes a legal entity that is separate from its owners?

• A. Sole Proprietorship
• B. Cooperative
• C. Company/ Corporation
• D. Partnership

Answer: (C)

Separating legal personality means the business is treated as its own person under the law, distinct from the people who own it. A company or corporation is created as this separate legal entity, so it can own assets, enter contracts, sue and be sued, and it can continue regardless of changes in ownership. Importantly, owners typically have limited liability, meaning shareholders are not personally on the hook for the company’s debts beyond their investment. This combination—a distinct legal identity, the ability to own property and contract in its own name, continuity, and limited liability—fits the description of a legal entity separate from its owners.

Sole proprietorship lacks separation because the owner and the business are one, exposing personal assets to business debts. A partnership similarly blends owner and business responsibilities, with partners generally bearing personal liability. A cooperative, while owned by its members and potentially a separate entity in many systems, is not the classic example called out for a distinct legal personality in common exam framing; the standard term used for a clearly separate legal entity is a company or corporation.