Liability in Business Structures

Steps:

• Evaluate statement 1: Debenture holders are lenders to the company, not owners, so they face no liability for company debts.
• Evaluate statement 2: In a partnership, all partners have unlimited liability, requiring personal assets to cover business debts.
• Evaluate statement 3: Shareholders in a limited company have limited liability, protected from company debts beyond their investment.
• Evaluate statement 4: A sole trader operates as an individual with unlimited liability, personally responsible for all business debts.

Why C is correct:

• Option C selects statements 2 and 4, aligning with the legal principle of unlimited liability for partners and sole traders under common business law.

Why the others are wrong:

• A includes false statement 1 about debenture holder liability.
• B includes false statements 1 and 3 on creditor and shareholder responsibilities.
• D includes false statement 3 about shareholder liability.

Final answer: C