Which of the following statements is true of a corporation?

• A. A corporation cannot issue shares of stock to raise capital.
• B. A corporation is a separate legal entity distinct from its owners.
• C. A corporation's owners have unlimited liability for its debts.
• D. A corporation dissolves automatically upon the death of a shareholder.

Answer: (B)

Verified step by step guidance

1. Understand the concept of a corporation: A corporation is a separate legal entity created under state or federal law. It is distinct from its owners, meaning it can own assets, incur liabilities, and enter into contracts independently of its shareholders.
2. Analyze the first statement: 'A corporation cannot issue shares of stock to raise capital.' This is incorrect because corporations commonly issue shares of stock to raise capital from investors.
3. Evaluate the second statement: 'A corporation is a separate legal entity distinct from its owners.' This is correct because the corporation operates independently of its shareholders, and its existence is not tied to any individual owner.
4. Review the third statement: 'A corporation's owners have unlimited liability for its debts.' This is incorrect because shareholders of a corporation typically have limited liability, meaning their financial risk is limited to their investment in the corporation.
5. Assess the fourth statement: 'A corporation dissolves automatically upon the death of a shareholder.' This is incorrect because a corporation has perpetual existence, meaning it continues to exist regardless of changes in ownership or the death of a shareholder.