Question

the term \limited liability\ means ______.
the liability of the stock holders is limited to the extent of the assets of the corporation.
the liability of directors is limited to the extent of the assets of the corporation.
the liability of the stock holders is limited to the value of the stocks held by them.
the liability of the corporation is limited to the extent amount borrowed.

Explanation:

To determine the correct meaning of "limited liability", we analyze each option:

• Option 1: Stockholders' liability isn't limited by corporate assets (corporate assets are for corporate liabilities, not stockholders' personal liability limit).
• Option 2: Directors' liability in limited liability context isn't about corporate assets; their liability rules differ.
• Option 3: In a corporation, stockholders' liability is limited to the value of the stocks they hold. If the corporation incurs debts, stockholders lose up to their investment (stock value), not more.
• Option 4: A corporation's liability isn't limited to borrowed amounts; it's liable for all its obligations, and stockholders' liability is limited, not the corporation's.

Answer:

C. The liability of the stock holders is limited to the value of the stocks held by them.