Which action describes changing a business structure to separate the entity from the people involved?

Incorporating a business is the action that describes changing a business structure to create a legal entity separate from its owners. When a business incorporates, it transforms into a corporation, which is recognized by law as a distinct entity. This separation provides limited liability protection to the owners, meaning their personal assets are generally protected from business debts and legal actions. As a result, the corporation can enter contracts, incur debts, and be sued independently of the individuals running it.

In contrast, merging involves combining two businesses into one, but it does not inherently create a separate legal entity. Franchising represents a business model where a franchisee operates a business under the branding and operational support of the franchisor, and while it involves some separation, it does not alter the entity's structure in a legal sense. Liquidation is the process of winding down a business and selling off its assets, resulting in it ceasing to exist rather than establishing a separate entity. Therefore, incorporating is the definitive action for creating legal separation in business structure.