Which of the following statements is the most accurate description of limited liability? A. In a...

Which of the following statements is the most accurate description of limited liability?

	A.	In a company limited by shares, shareholder who holds a share in the company is not liable beyond any amount outstanding on partly paid shares.
	B.	In a company limited by shares, a company has limited liability for their debts.
	C.	A company is a separate legal entity from its directors, so directors are always shielded from the company's losses.
	D.	A and B above.
	E.	None of the above.

Solutions

Expert Solution

Option A: In a company limited by shares, the liability of the shareholder is limited to the unpaid shares held by him. He is not liable to pay any outstanding amount beyond the partly paid shares. The limited liability separates the company from its shareholders describing them as two separate personalities. In the given question, Option A accurately describes the limited liability.

Option B: Limited liability separates the shareholders from the company. The shareholders have limited liability and not the company. Hence, this option is incorrect.

Option C: Although limited liability separates the directors from the company, it does not always shield the directors from the company's losses. There are scenarios where the directors might be held liable for the company's losses such as: Signing a personal guarantee, and when there is an overdrawn loan account for the director. Hence, this option is incorrect.

Option D and Option E are incorrect as Option B and C are incorrect.

To conclude, Option A is correct and it accurately provides the description of limited liability.

ekkarill92 answered 1 year ago

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