Wisconsin Esthetics State Board Practice Test

Which of the following best describes a corporation?

1. A business where one person owns and controls all assets

2. A legal entity that exists independently of its owners

3. A simple agreement between two business partners

4. A type of franchise that requires no investment

The correct answer is: A legal entity that exists independently of its owners

A corporation is best described as a legal entity that exists independently of its owners. This means that a corporation can conduct business, enter into contracts, and own assets in its own name, separate from the individuals who own shares in the corporation. This distinction provides limited liability for the owners, meaning their personal assets are generally protected from business debts and liabilities. In contrast to a corporation, a sole proprietorship is owned and controlled by one person, who is personally responsible for all liabilities. Partnerships, which involve agreements between two or more individuals, do not create an entity separate from their owners, resulting in shared responsibility for debts. Franchises typically involve a brand agreement and would also require some form of investment from the franchisee to operate under the brand, making that option misaligned with the characteristics of a corporation. Thus, option B accurately encapsulates the nature and legal standing of a corporation.