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Bus/210 Week 2 Knowledge Check

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Submitted By ddouse
Words 1443
Pages 6
1.
Which of the following best describes limited liability as it relates to a business?
A.
The stockholder’s financial liability is limited to a fixed investment amount.
B.
Limited liability discourages entrepreneurs to start new businesses.
C.
If the business fails, personal assets of the owner(s) are at risk.
D.
Creditors are entitled to recover outstanding debt beyond the financial assets of the business.
Incorrect :
While the unlimited liability corporations lessened corruption and fraud during the Industrial Revolution, the financial risk was too high for many new business owners. As a result, to encourage new economic growth limited liability corporations were formed to protect new business owners from exposure of their personal assets if the business failed.

Materials
The Limited Liability Company
2.
What was the original purpose of the limited liability company?
A.
To encourage investors to take financial risks to ensure a business’ success
B.
To control specialization of new businesses
C.
To favor creditors with the ability to seek recovery of assets to repay debt
D.
To limit financial risk exposure and encourage formation of new businesses
Correct :
There are many reasons that a new business may fail and some may be out of the owner’s financial control. The original purpose of the limited liability corporation was to support the small business stockholders to make a fixed sum investment and still protect their personal finances; many new corporations were started. Our global economy has many of these small businesses started in the Industrial Revolution still thriving as major corporations today.

Materials
The Limited Liability Company
3.
Which of the following businesses is the best example of when to set up a limited liability company in order to control financial risk of the stockholder(s)?
A.
Hertz Car

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