Limited liability by guarantee is typically used by which type of organization?

Limited liability by guarantee is typically used by which type of organization?

• A. Sole trader
• B. Not for profit
• C. Public limited company
• D. Partnership

Answer: (B)

Limited liability by guarantee is a way for an organization to limit members’ risk without issuing shares. Members agree to contribute a fixed amount if the entity winds up, so their maximum exposure is the guaranteed sum rather than the debts of the business. This structure is typical for not-for-profit bodies such as charities, clubs, and associations, where there are no owners or shareholders to distribute profits to. In contrast, a sole trader or a general partnership involves personal or joint liability for debts, and a public limited company relies on share capital with liability limited to unpaid shares, not a fixed guarantee. So, the best fit is not-for-profit.

Limited liability by guarantee is a way for an organization to limit members’ risk without issuing shares. Members agree to contribute a fixed amount if the entity winds up, so their maximum exposure is the guaranteed sum rather than the debts of the business. This structure is typical for not-for-profit bodies such as charities, clubs, and associations, where there are no owners or shareholders to distribute profits to. In contrast, a sole trader or a general partnership involves personal or joint liability for debts, and a public limited company relies on share capital with liability limited to unpaid shares, not a fixed guarantee. So, the best fit is not-for-profit.