What does limited liability for shareholders mean?

• A. Shareholders have unlimited liability
• B. Liability is limited to the amount paid for shares
• C. Liability extends to personal assets for corporate debts
• D. Liability is limited to charitable contributions

Answer: (B)

Limited liability means shareholders are not personally responsible for the debts of the corporation because the company is a separate legal entity. Creditors can go after the corporation’s assets, not the shareholders’ personal assets, so a shareholder’s risk is limited to the amount paid for their shares. This protection is what makes investing in a corporation attractive, since personal wealth is shielded from business losses (though there are exceptions like personal guarantees or piercing the corporate veil in certain abuses). The other statements misstate the concept: unlimited liability applies to sole proprietorships or partnerships, not corporations; personal assets for corporate debts would defeat the corporate veil; and liability limited to charitable contributions has no basis in corporate law.