What is the term for a business structure in which owners are liable only for the amount they have invested?

• A. Limited liability
• B. Full liability
• C. Joint liability
• D. Unlimited liability

Answer: (A)

The term that describes a business structure where owners are liable only for the amount they have invested is limited liability. This concept is crucial because it protects the personal assets of the owners from being used to pay off the business's debts. In a limited liability setting, if the business faces financial difficulties or bankruptcy, the owners’ risk is restricted to their investment in the company, meaning they won’t lose more than what they have contributed.

For example, in a limited company, shareholders are not personally liable for the debts of the company beyond their investment. This encourages investment and entrepreneurship, as individuals may be more willing to invest if they know their personal savings and property are protected.

In contrast, full liability means that the owners could be held responsible for all business debts, which increases the financial risk for personal assets. Joint liability indicates that partners in a business could be personally responsible for the entire debt of the business, regardless of their investment or ownership percentage. Unlimited liability means that owners are fully responsible for all business debts and obligations, which can significantly heighten personal financial risk.