Which statement about limited companies is true?

Which statement about limited companies is true?

• A. They have limited liability for shareholders
• B. They are taxed as individuals on profits
• C. They cannot issue shares
• D. They must be unincorporated by law

Answer: (A)

Limited liability is what protects owners in a limited company. Because the company is a separate legal entity, it can own assets, enter contracts, and sue or be sued in its own name. Shareholders’ liability is limited to the amount they have invested in shares, so their personal wealth isn’t at risk if the company fails beyond that investment. This is why the statement about limited liability for shareholders is true. The other ideas don’t fit: a limited company can issue shares to raise capital, so they are not unable to issue shares. They are incorporated as a separate legal entity, so they are not required to be unincorporated by law. And profits aren’t taxed as if they were the individuals’ income—the company pays corporation tax on its profits, with shareholders potentially taxed on dividends, which is a separate and subsequent tax event.

Limited liability is what protects owners in a limited company. Because the company is a separate legal entity, it can own assets, enter contracts, and sue or be sued in its own name. Shareholders’ liability is limited to the amount they have invested in shares, so their personal wealth isn’t at risk if the company fails beyond that investment.

This is why the statement about limited liability for shareholders is true. The other ideas don’t fit: a limited company can issue shares to raise capital, so they are not unable to issue shares. They are incorporated as a separate legal entity, so they are not required to be unincorporated by law. And profits aren’t taxed as if they were the individuals’ income—the company pays corporation tax on its profits, with shareholders potentially taxed on dividends, which is a separate and subsequent tax event.