Alabama Contractors License Practice Exam

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Study for the Alabama Contractors License Test. Prepare with quizzes featuring flashcards and multiple-choice questions, each supported by hints and explanations. Equip yourself for exam success!

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What is the liability of an S Corporation concerning its shareholders?

Unlimited
Limited
Variable
Joint

The correct answer is: Limited

The liability of an S Corporation concerning its shareholders is classified as limited. This means that the shareholders of an S Corporation are typically not personally liable for the debts and liabilities of the corporation beyond their investment in the company. This protects their personal assets from being used to satisfy business debts, which is one of the primary benefits of forming an S Corporation. In an S Corporation, the owners (shareholders) can only lose what they have invested in the corporation. If the business faces financial difficulties or legal issues, creditors can only pursue the corporation's assets, not the personal assets of the shareholders, assuming no personal guarantees have been made. This structure is designed to encourage investment and entrepreneurship by providing a safety net for individual investors. In contrast, other types of business structures, such as sole proprietorships or general partnerships, may expose their owners to unlimited liability, leading to greater risk for personal assets.