SIE Exam Question 430: Answer and Explanation

Question: 430

Limited liability means that a common shareholder:

• A. Cannot be charged any more than a designated amount in addition to his initial investment
• B. Can never lose an amount in addition to his entire investment
• C. Is guaranteed to lose no less than a designated percentage of his investment
• D. Can never lose his entire investment

Correct Answer: B

Explanation:

B: A defining feature of a corporation is that it offers limited liability to its investors, meaning that investors are held liable for only the amount of money they invest in the company. This means that investors' other assets are not at risk for the company's debts; nor are investors personally liable for any lawsuits that might be brought against the company. The most they can ever lose by the purchase of a company's stock is its purchase price.