Question

XYZ private company which is not One Person Company had reduced to a single member and continued business more than 6 months. The company's liability will be ________________.

• A. limited
• B. unlimited
• C. no change in liability
• D. All of the above

Answer 1

Answer: (B)

unlimited

Unlimited liability, which typically exists in general partnerships and sole proprietorships, indicates that whatever debt accrues within a business – whether the company is unable to repay or defaults on its debt – each of the business’ owners is equally responsible and personal wealth could reasonably be seized to cover the balance owed. For this reason, most companies opt to form as limited partnerships instead of risking personal assets through unlimited liability businesses. But in companies where member is a single person and it is not one-person company then the liability cease to be limited.