Question

Which of the following statements describes the corporate characteristic termed limited liability? Your answer: O The liabilities of the corporation cannot be extended to the personal assets of the shareholder. Shares of stock can be readily bought and sold by investors on the open market. O Shareholders are not authorized to sign contracts or make business commitments on behalf of the corporation Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock. Clear answer

Answer 1

Answer The first statement i.e the liabilities of the corporation cannot be extended to the personal assets of the shareholder, describes the corporate characteristic termed "limited liability".

Limited Liability:The limited liability of shareholders is the single most important advantage of corporate organizations.Unlike a proprietorship or a patnership,a corporation is a separate legal entity,responsible for its own debts.The owners are not personally liable for the debts of a corporation.The shareholder's liability is limited to the amounts that they invest in the company when they purchase shares.A corporation's creditors may not go beyond the assets of the corporation to satisfy their claims.Thus,the financial loss that the stockholder may suffer is limited to the amount invested.