Question

limited liability means that
a. shareholders in a corporation must pay some but not all of the liabilities of the firm.
b. corporations have limited accountability for their debts and obligations.
c. corporations have only limited responsibility for their actions.
d. shareholders in a corporation cannot lose more than their investment in the firm.
the government grants limited liability to the owners of corporations
a. to limit shareholder risk and thus encourage investment in corporations.
b. because the owners do not run the corporation and thus should not be responsible for its debts.
c. to allow the corporation to borrow money in the form of bonds.
d. to make market economies more equitable and efficient.

Explanation:

• First question:
• Limited liability for shareholders in a corporation means their liability is restricted to their investment. They are not personally liable for the firm's debts beyond what they have invested.
• Option A is incorrect as shareholders do not pay the firm's liabilities. Option B is wrong because it's the shareholders' liability that is limited, not the corporation's accountability for debts (the corporation is still fully liable for its debts). Option C is incorrect as it's not about the corporation's responsibility for actions in the way described; it's about shareholder liability.
• Second question:
• The government grants limited liability to encourage investment. If shareholders had unlimited liability (e.g., being personally responsible for all corporate debts), fewer people would invest.
• Option B is incorrect as owners can run the corporation (e.g., in closely - held corporations) and limited liability is not based on management status. Option C is not the main reason; borrowing via bonds is a corporate action, and limited liability is about shareholder risk. Option D is too broad; the main, more direct reason is to encourage investment by limiting shareholder risk.

Answer:

• First question: D. shareholders in a corporation cannot lose more than their investment in the firm.
• Second question: A. to limit shareholder risk and thus encourage investment in corporations.