Introductory Business Law CLEP Prep Practice Exam

Which of the following is true concerning limited liability companies?

1. They must have at least one shareholder.

2. Their liability is limited to only certain assets.

3. They submit a charter document to an attorney for review.

4. Their members are responsible for all debts and liabilities.

The correct answer is: Their liability is limited to only certain assets.

A This statement is incorrect because limited liability companies do not have shareholders, they have members. C: This statement is incorrect because limited liability companies do not submit a charter document to an attorney for review, they file articles of organization with the state. D: This statement is incorrect because the main advantage of a limited liability company is that its members are not personally responsible for the company's debts and liabilities. A limited liability company's liability is limited to only certain assets, meaning that if the company faces legal action or goes bankrupt, the personal assets of its members are protected. This is different from a sole proprietorship or general partnership, where the business owners are personally liable for all debts and liabilities of the company. Therefore, option B is the correct answer.