What is a private limited company (Ltd.), and how does liability work for shareholders?

• A. A company with limited liability; shareholders' liability is limited to their shareholding.
• B. A sole trader with unlimited liability.
• C. A partnership with joint and several liability.
• D. A company whose shares can be bought by the public.

Answer: (A)

In a private limited company, the business is a separate legal entity, so shareholders’ liability is limited to the amount they have invested in the company through shares. This means that if the company owes money or goes into liquidation, the shareholders can lose the value of their shares, but they are not personally responsible for the company’s debts beyond that investment. The company’s creditors can only claim against the company’s assets, not the shareholders’ personal assets, unless a personal guarantee was given.

The other options don’t fit because a private limited company is not a sole trader with unlimited liability, nor a partnership with joint and several liability. Also, while a private company’s shares aren’t publicly traded, the defining idea here is the limited liability for shareholders, not whether shares are available to the public.