| liability ones participate contractual acts investment risk prevent
|
Safety is a prime consideration for most investors, particularly when they are not major participants in the enterprise. Limited partners who do not 1_________ in management and shareholders in a corporation may lose their investment if the business fails. However, they have no further liability to creditors of the business or to victims of torts that are attributable to the business. In contrast, partners in a general partnership may lose not only their 2__________ but also may be required to pay partnership debts from personal assets. Sole proprietors have the same risk of unlimited personal 3_________.
In many instances, shareholders in a small corporation may be induced to voluntarily waive their unlimited liability. Credit to such corporations, especially new 4________ without strong earnings records, may be granted only if the debt is guaranteed by one or more of the shareholders. Lending banks often require shareholders to cosign corporate notes. Suppliers may require shareholders to guarantee accounts. These 5________ are seldom demanded of limited partners because the general partners are liable. This exception to limited liability seldom occurs outside of the 6__________ context. For example, a victim of the negligence of an employee in driving the corporation’s delivery truck cannot get the wealthiest shareholder to agree to assume liability after an accident. Therefore, from a 7________ standpoint, a shareholder or limited partner is better off than a general partner. Sometimes courts strip corporate shareholders of their limited liability to 8________ unfair results. This concept is known as “ piercing the corporate veil ”.
