Final answer:
Shareholders in a corporation are liable only for the amount of their investment in the event of business failure. The correct answer is option 2.
Step-by-step explanation:
In response to the question regarding shareholder liability in the event of a corporation's failure, it is important to understand the concept of limited liability. A corporation is a legal entity that is separate from its owners, the shareholders. The primary characteristic of a corporation is that shareholders have limited liability, meaning they are only responsible for the amount of money they have invested in the company.
Therefore, in the event of a business failure, shareholders are liable only for the amount of their investment and not for the corporation's remaining debts after creditors and debt holders are paid. This business structure encourages investment and allows companies to raise money through the sale of stock, making it easier to finance company growth and other business purposes.
The correct option in response to the student's question is: Shareholders in the corporation can be liable for the amount of their investment (Option 2).