Future Business Leaders of America (FBLA) Business Law Practice Exam

What type of liability do business owners have with unlimited liability?

1. Limited to their investment in the company

2. Protected from personal asset claims

3. Fully responsible for all business debts

4. Subject to corporate governance requirements

The correct answer is: Fully responsible for all business debts

Business owners with unlimited liability are fully responsible for all business debts, which means that their personal assets can be used to satisfy the obligations of the business. This type of liability is typically seen in sole proprietorships and general partnerships, where the owners do not have the legal protection that corporations provide. When a business incurs debts or faces legal claims, the owners can be held personally accountable, which can impact their savings, property, and other personal assets. This significant risk underscores the importance of careful financial management and legal structuring for business owners who operate under this liability model. The other choices do not represent the nature of unlimited liability accurately. For example, limited to investment in the company suggests a protection that isn't available to these owners. Being protected from personal asset claims inherently contradicts the concept of unlimited liability. Additionally, while corporate governance requirements apply to corporations, they do not pertain to sole proprietors or partnerships that operate under unlimited liability.