Which statement is true about corporations?

• A. They cannot raise funds by selling stock.
• B. They are taxed as pass-through entities.
• C. They are a legal entity separate from its owners.
• D. They always operate as nonprofits.

Answer: (C)

The key idea here is that a corporation is a separate legal entity from its owners. This separation allows the company to own assets, sign contracts, and sue or be sued in its own name, and it continues to exist regardless of changes in ownership. Because of this distinct legal status, a corporation can raise funds by selling stock to investors—the money goes to the corporation, not to the individual owners, in exchange for ownership shares. When it comes to taxes, standard for-profit corporations pay corporate income tax on their profits, and when those profits are distributed as dividends, shareholders may also owe taxes on those dividends—this is different from pass-through taxation, which applies to certain other business forms and isn’t the typical rule for ordinary corporations. Nonprofit corporations do exist, but that describes a specific type with tax-exempt purpose, not the universal case for all corporations.