AQA GCSE · Question 01.10 · Business in the real world
Explain one benefit to shareholders of limited liability.
How to approach this question
1. Define what limited liability means for a shareholder.\n2. Explain why this is an advantage for them.
Full Answer
Limited liability means that shareholders are only liable for the amount of money they have invested in the business (1 mark). This protects their personal assets, such as their house or car, if the business fails and has debts, which reduces their personal financial risk (1 mark).
Limited liability is a legal status where a person's financial liability is limited to a fixed sum, most commonly the value of their investment in a company. This is a key feature of private limited companies (Ltd) and public limited companies (PLC). If the company goes bankrupt, creditors cannot pursue the owners (shareholders) for their personal property to repay the company's debts. This separation of personal and business finances reduces the risk for investors and makes it easier for companies to raise capital.
Common mistakes
✗ Confusing limited liability with unlimited liability (which applies to sole traders and partnerships).\n✗ Not clearly explaining that personal assets are protected. This is the key point.
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