There is a legal difference between the owners of a company and the business itself that ensures owners are safeguarded by limited liability. What term best describes this concept?

• A. Limited Liability
• B. Incorporation
• C. Certificate of Incorporation
• D. Deed of Partnership

Answer: (B)

The concept here is that forming a company creates a separate legal entity that can own assets, enter contracts, and sue or be sued in its own name. This separation is achieved through incorporation, and it is what enables limited liability for the owners—the shareholders’ personal assets are protected beyond their investment in the company. So, the term that best describes this idea is incorporation, because it establishes the company as a distinct legal person. Limited liability describes the protection itself, not the act of creating the separate entity. A certificate of incorporation is just the formal document proving formation, and a deed of partnership relates to partnerships, not corporations.