Which statement correctly describes a limited liability company as a type of business entity?

Answer and explanation

Correct answer: C. It has a separate legal personality, so the company itself owns its assets and owes its debts

  1. Step 1: A company is incorporated, which gives it a legal personality separate from its owners.
  2. Step 2: The company therefore owns assets and owes liabilities in its own name; shareholders' liability is limited to the amount unpaid on their shares.
  3. Step 3: Check the other options against sole traders and partnerships, which are not separate legal persons.
Answer
It has a separate legal personality, so the company itself owns its assets and owes its debts.
Why not the others: This describes an unincorporated sole trader or partnership; shareholders of a limited company normally risk only the capital they agreed to pay. This is a partnership rule; a company can be formed by one person and profits are shared by dividends, not equally by default. Companies must prepare annual financial statements, and this is a main reason why shareholders who are not managers can hold directors to account.

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