Future Business Leaders of America (FBLA) Entrepreneurship Practice Test

Which business structure provides the advantage of limited liability for its owners?

1. General Partnership

2. Corporation

3. Sole Proprietorship

4. Limited Liability Company

The correct answer is: Corporation

The business structure that provides the advantage of limited liability for its owners is a corporation. This means that the shareholders of a corporation are not personally responsible for the debts and liabilities of the business. Their liability is limited to the amount they have invested in the corporation, protecting their personal assets in the event of financial trouble or lawsuits against the business. This advantage makes corporations an attractive option for entrepreneurs seeking to shield their personal assets from business risks. Corporations are considered separate legal entities, which means they can own property, enter contracts, and incur debts independently of their owners. This protection encourages investment and growth, as investors can feel confident that their personal wealth is safeguarded. While a Limited Liability Company (LLC) also provides limited liability protection to its owners, the question specifically identifies the corporation as the answer, underscoring its long-standing recognition and use in providing such protection in many countries. In contrast, general partnerships and sole proprietorships do not offer limited liability; in these structures, the owners are personally liable for the debts and obligations of the business.