What describes the liability of owners in a corporation?

What describes the liability of owners in a corporation?

• A. Unlimited liability
• B. Limited liability
• C. Personal liability
• D. Shared liability

Answer: (B)

Limited liability describes the liability of owners in a corporation because it means that the owners, or shareholders, are only financially responsible for the debts and obligations of the corporation up to the amount they have invested in it. This legal structure protects personal assets of the owners from being used to pay off corporate debts. In the event that the corporation faces financial difficulties or lawsuits, the shareholders' risk is confined to their investment in the company, which encourages investment and entrepreneurship since individuals can pursue business opportunities without risking everything they own. This characteristic is a significant advantage of operating as a corporation, as it distinguishes it from other business forms, such as sole proprietorships and partnerships, where owners can be personally liable for business debts.

Limited liability describes the liability of owners in a corporation because it means that the owners, or shareholders, are only financially responsible for the debts and obligations of the corporation up to the amount they have invested in it. This legal structure protects personal assets of the owners from being used to pay off corporate debts. In the event that the corporation faces financial difficulties or lawsuits, the shareholders' risk is confined to their investment in the company, which encourages investment and entrepreneurship since individuals can pursue business opportunities without risking everything they own.

This characteristic is a significant advantage of operating as a corporation, as it distinguishes it from other business forms, such as sole proprietorships and partnerships, where owners can be personally liable for business debts.