Which liability means shareholders are only responsible for the amount invested?

Which liability means shareholders are only responsible for the amount invested?

• A. Limited Liability
• B. Joint Liability
• C. No liability
• D. Unlimited Liability

Answer: (A)

The main idea being tested is limited liability for shareholders. This means their maximum loss is only the money they paid for their shares. If the company runs into trouble and cannot pay its debts, personal assets (like home or savings) aren’t at risk—only the invested capital can be lost. This feature encourages people to invest because their personal finances aren’t exposed beyond their shareholding. Think of the other notions: unlimited liability would expose personal assets to cover company debts, which isn’t the case for shareholders in a limited company. Joint liability refers to shared responsibility among several parties in some business forms, not the standard protection for shareholders. No liability isn’t accurate because investors can still lose the money they invested.

The main idea being tested is limited liability for shareholders. This means their maximum loss is only the money they paid for their shares. If the company runs into trouble and cannot pay its debts, personal assets (like home or savings) aren’t at risk—only the invested capital can be lost. This feature encourages people to invest because their personal finances aren’t exposed beyond their shareholding.

Think of the other notions: unlimited liability would expose personal assets to cover company debts, which isn’t the case for shareholders in a limited company. Joint liability refers to shared responsibility among several parties in some business forms, not the standard protection for shareholders. No liability isn’t accurate because investors can still lose the money they invested.