What does limited liability mean for owners?

What does limited liability mean for owners?

• A. Owners' personal assets are protected from business debts
• B. Owners are personally liable for all debts
• C. The company must issue dividends
• D. The company cannot be sued

Answer: (C)

Limited liability means owners’ personal assets are protected from the business’s debts because the business is a separate legal entity. The owners’ risk is limited to the amount they have invested in the company (and any personal guarantees they may have signed). So, if the company fails, creditors can claim the company’s assets but not typically the owners’ personal houses or savings. This protection is what makes investing in a company appealing since personal wealth isn’t at risk for ordinary business debts. Exceptions exist if an owner personally guarantees a loan or engages in fraud or illegal activity, where their personal assets can be at risk.

Limited liability means owners’ personal assets are protected from the business’s debts because the business is a separate legal entity. The owners’ risk is limited to the amount they have invested in the company (and any personal guarantees they may have signed). So, if the company fails, creditors can claim the company’s assets but not typically the owners’ personal houses or savings. This protection is what makes investing in a company appealing since personal wealth isn’t at risk for ordinary business debts. Exceptions exist if an owner personally guarantees a loan or engages in fraud or illegal activity, where their personal assets can be at risk.