Canadian Securities Course (CSC) Level 1 Practice Exam

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What is a corporation?

It is a legal entity owned by shareholders.
It is a legal entity separate from the people who own its shares.
Property is owned by the shareholders, not the corporation.
Shareholders are liable for the corporation's debt.

The correct answer is: It is a legal entity separate from the people who own its shares.

A corporation is a legal entity that is separate from the individuals who own its shares. This separation is a key characteristic of corporations, as it means that the corporation itself can own property, enter into contracts, and be held liable for its own actions - separate from the shareholders who own it. This concept is known as limited liability, where the shareholders' liability is typically limited to the amount they have invested in the corporation. Therefore, option B is the correct answer as it accurately reflects the nature of a corporation as a legal entity distinct from its shareholders.