Question

The ________ is a general rule of corporate law that provides that generally, shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation.

1) limited-purpose clause
2) limited liability of shareholders
3) preferred shareholder rule
4) nonparticipating shareholder rule

Answer 1

Limited liability of shareholders is a general rule of corporate law that protects shareholders from personal liability for the debts and obligations of the corporation.

Step-by-step explanation:

The correct answer is 2) limited liability of shareholders. The concept of limited liability is a fundamental principle of corporate law. It means that shareholders are not personally liable for the debts and obligations of the corporation beyond the amount they have invested in it.

This protection allows shareholders to take risks in investing in the corporation without risking their personal assets.