Introductory Business Law CLEP Prep Practice Exam

What term is used for the doctrine that limits a business’s liability in damages?

1. Limited Liability

2. Absolute Liability

3. Strict Liability

4. Proportional Liability

The correct answer is: Limited Liability

Limited Liability is the term used to describe a business's liability in damages. This means that the business is only responsible for a certain amount of damages, which is determined by the type of business structure and the amount of investment made by the owners. Absolute liability, on the other hand, would mean that the business is fully responsible for any damages that occur. Strict liability is a legal doctrine that holds a person or company responsible for their actions regardless of fault or intent. Proportional liability is a concept where damages are divided among multiple parties based on their degree of responsibility. Therefore, limited liability is the most appropriate term for the given scenario.