Utah General Contractors - Business and Law Practice Exam

What is a characteristic of a corporation?

1. Owners have unlimited liability

2. It is owned by a single individual

3. It can sell shares to raise capital

4. It has a limited lifespan

The correct answer is: It can sell shares to raise capital

A corporation is a distinct legal entity that is recognized by law as separate from its owners, which is a primary characteristic that enables it to sell shares to raise capital. This ability to issue shares means that individuals or entities can invest in the corporation by purchasing ownership stakes, which provides the company with financial resources to fund its operations, growth, or other capital needs. Many businesses choose to incorporate because this method allows them to access a broader range of investors and capital markets, enhancing their capacity for growth and expansion. The process of selling shares also creates liquidity for investors, as shares can often be bought and sold on public stock exchanges. The other options highlight characteristics that do not apply to corporations. For example, owners of a corporation typically enjoy limited liability, meaning they are not personally responsible for the corporation’s debts or liabilities. Corporations are not owned by a single individual; they can have multiple shareholders with ownership spread among them. Lastly, corporations can have a perpetual lifespan, existing independently of the status of its shareholders, rather than a limited lifespan as might be the case with different business structures like sole proprietorships or partnerships.