National Occupational Competency Testing Institute (NOCTI) Business Practice Exam

What distinguishes a corporation from an individual in terms of rights and liabilities?

1. Limited rights and privileges

2. Has certain rights, privileges, and liabilities beyond those of an individual

3. Only partnerships hold equal rights

4. No legal liability

The correct answer is: Has certain rights, privileges, and liabilities beyond those of an individual

A corporation is distinguished from an individual primarily by the comprehensive set of rights, privileges, and liabilities it possesses as a legal entity. Corporations can own property, enter into contracts, sue, and be sued independently of their shareholders or owners. This separation provides distinct advantages, such as limited liability, meaning that the personal assets of shareholders are protected from the corporation's debts and obligations. In addition, corporations typically enjoy certain privileges not available to individuals, such as continuity of existence regardless of changes in ownership and the ability to raise capital through the sale of stock. These features establish corporations as powerful entities in the business world, capable of undertaking significant economic activities while protecting individuals from personal financial risks associated with those activities. In contrast, individuals typically do not enjoy the same level of protection regarding liability and may be personally responsible for debts they incur. Therefore, the choice accurately reflects the enhanced rights and responsibilities of a corporation compared to an individual.