What type of legal organization has assets and liabilities separate from its owners?

The correct answer is a corporation because it operates as a distinct legal entity that has its own rights and obligations separate from those of its owners, who are known as shareholders. This separation means that a corporation can own property, enter into contracts, and be held liable for its debts independently of its shareholders. This structure provides limited liability protection; thus, the personal assets of the shareholders are generally not at risk if the corporation faces bankruptcy or legal issues.

In contrast, a partnership and a sole proprietorship do not provide this separation. In a partnership, the partners share a personal liability for the business debts and obligations, meaning their personal assets can be at risk. Similarly, a sole proprietorship is not distinct from the owner; the owner is personally liable for all debts incurred by the business, placing their assets in jeopardy.

A franchise, on the other hand, typically refers to a business model in which a franchisee operates under the brand and business model of a franchisor, but it does not inherently offer the same legal separation of assets and liabilities as a corporation. Therefore, understanding the characteristics and legal implications of these business structures is crucial, particularly in the context of risk management and liability protection.