DECA+ Business Management and Administration Practice Exam

What defines a corporation?

1. A business owned by a single individual

2. A form of business owned by stockholders

3. A partnership agreement between two or more entities

4. A non-profit organization that serves the public

The correct answer is: A form of business owned by stockholders

A corporation is defined as a form of business that is owned by stockholders. This structure allows individuals to invest money in the business in exchange for shares or ownership stakes. As a distinct legal entity, a corporation can enter contracts, incur debts, and be held legally accountable for its actions. This separation of ownership and management provides stockholders with limited liability, meaning they are generally not personally responsible for the corporation's debts or liabilities beyond their investment in shares. In contrast, a business owned by a single individual represents a sole proprietorship, where the owner maintains complete control and takes on personal liability. A partnership agreement involves two or more individuals working together, which is different from the corporate framework. Lastly, non-profit organizations focus on serving the public good rather than generating profits for owners or stockholders, distinguishing them further from the corporate structure. Thus, the definition of a corporation as owned by stockholders encapsulates its unique characteristics in business operations.