CIMA BA3 · Chapter 1 · Question 8 of 10
A business is set up as a limited liability company rather than as a sole trader. Which of the following is a consequence of this?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) The shareholders' liability for the company's debts is limited to the amount unpaid on their shares
Explanation
A limited liability company is a separate legal entity, so shareholders can lose no more than the amount they have paid, or agreed to pay, for their shares. Unlimited personal liability applies to a sole trader. Companies must prepare financial statements and are taxed on their own profits.
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