True or False?  Limited liability is a key advantage of partnership and sole proprietorships over corporations.

Expert Answers
thetall eNotes educator| Certified Educator

In a business with limited liability, the directors' or investors' liability is limited to the amount they have invested in the business. The principle is an important factor in public and private limited companies. In case a lawsuit ends up requiring some monetary compensation from the company, then the amount to be recovered will only be limited to the amount available to the company and will not affect privately held assets belonging to the individual investors.

Limited liability can also be extended to partnerships where the limited partners enjoy limited liability, while the general partner is exposed to unlimited liability. In case of bankruptcy, the general partner’s personal property remains at risk of being auctioned to pay off the debt if the amount available from the company is exhausted. Thus, the statement is false because corporations enjoy the benefits of limited liability. Sole proprietorships consider the owner and the business as a single entity, which means both the business and the owner are completely and equally liable for debts.

pohnpei397 eNotes educator| Certified Educator

This statement is false.  In fact, it is the exact opposite of the truth.

Limited liability is not an advantage enjoyed by partnerships and sole proprietorships.  In fact, limited liability is a major reason for a person to incorporate rather than to do business as a sole proprietor.  In sole proprietorships and partnerships, the owners of the firm are completely liable for any debts incurred by the firm.  There is no legal distinction between the person and the business.  The person's assets can be taken to pay for the firm's debts.

This statement is false, then, because limited liability is an advantage of incorporation, not of the other types of ownership mentioned here.

sarahokoth | Student liability is only viable to the limited partners in a partnership business and it is not in sole proprietorship.when a sole proprietor is under a huge debt then he or she will have to sell or give out personal things out of the business to pay the debts.