Which description best characterizes a limited company?

Which description best characterizes a limited company?

• A. A business with unlimited liability and no separate legal identity.
• B. A business with a separate legal identity and shareholders with limited liability.
• C. A partnership with two owners sharing profits.
• D. A charitable organization supported by donations.

Answer: (B)

Limited companies are defined by two key traits: they have a separate legal identity from their owners, and the owners (shareholders) have limited liability. Because the company is a distinct legal person, it can own assets, enter into contracts, and sue or be sued in its own name, and it can continue regardless of changes in ownership. The liability of shareholders is limited to the amount they have invested in shares, so their personal finances aren’t at risk for the company’s debts beyond that investment. This combination—separate legal identity plus limited liability for shareholders—best describes a limited company. This differs from a sole trader or general partnership, where the owners are personally liable for debts. It also differs from a charitable organization, which is a different type of entity and not defined by shareholders with limited liability in the same way.

Limited companies are defined by two key traits: they have a separate legal identity from their owners, and the owners (shareholders) have limited liability. Because the company is a distinct legal person, it can own assets, enter into contracts, and sue or be sued in its own name, and it can continue regardless of changes in ownership. The liability of shareholders is limited to the amount they have invested in shares, so their personal finances aren’t at risk for the company’s debts beyond that investment. This combination—separate legal identity plus limited liability for shareholders—best describes a limited company.

This differs from a sole trader or general partnership, where the owners are personally liable for debts. It also differs from a charitable organization, which is a different type of entity and not defined by shareholders with limited liability in the same way.