What term describes the situation where shareholders are not personally liable for any debts of the business?

The term that describes a situation where shareholders are not personally liable for any debts of the business is known as limited liability. This type of liability means that the financial responsibility of the shareholders is limited to the amount they have invested in the company. If the business incurs debts or faces legal issues, shareholders will only lose their investments and will not have to use personal assets to cover the business's obligations. This concept is crucial for encouraging investment as it reduces the risk for individuals who want to become shareholders in a company.

In contrast, unlimited liability implies that business owners are personally liable for all the debts incurred by the business, which can put personal assets at risk. The terms "shared liability" and "collective liability" do not specifically address the personal financial protection of shareholders in the same way. Overall, limited liability is an essential feature of many corporate structures, such as limited liability companies (LLCs) and corporations, promoting entrepreneurship while safeguarding personal financial security.