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Which of the following is an example of how finance is used throughout a firm?
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1. Introduction to Accounting
Types of Accounting
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Which of the following types of entities are subject to limited liability?
A
Sole proprietorships
B
Unlimited companies
C
General partnerships
D
Corporations
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Understand the concept of limited liability: Limited liability means that the owners of a business are not personally responsible for the debts and liabilities of the business beyond their investment in the company.
Review the characteristics of each entity type: Sole proprietorships, unlimited companies, and general partnerships do not offer limited liability protection. The owners are personally liable for the debts of the business.
Focus on corporations: Corporations are separate legal entities from their owners (shareholders). This separation provides limited liability protection, meaning shareholders are only liable up to the amount they invested in the corporation.
Compare the entities: Sole proprietorships, unlimited companies, and general partnerships expose owners to personal liability, while corporations protect owners through limited liability.
Conclude that corporations are the correct answer because they are the only entity type listed that provides limited liability protection to their owners.
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