any one can solve CSC canadian securities exam 1 question

[celebrity]

An institutional investor committed $2,000,000 of capital to a limited liability corporation, achieving an ownership interest in it of 5%. If the entity were to go bankrupt, and its assets were worth $100,000,000 and its liabilities were worth $500,000,000, the maximum amount that the institutional investor would be responsible in debts would be

Ans is ZERO
but how ???? anyone can explain?

 

[celebrity]

If anyone know so please reply

 

[JeffM]

I know absolutely nothing about Canadian law.

In U.S. law, however the answer would be zero as well. The maximum loss that an investor can incur from an investment in an entity that has limited liability is the amount invested. Debtors of the entity have no claim whatsoever against investors with limited liability. So if you buy a share of google and google goes belly-up, you owe nothing to those with legal claims against google.

So in your example, the institutional investor would incur a loss of $2,000,000 but would not be responsible to the debtors for a single penny. The question is worded in such a way as to make sure that you understand the meaning of “limited liability.” The classic counter-example to limited liability is an ordinary partnership, where each partner is personally liable for the full amount of the partnership’s debt.

 

[celebrity]

I know absolutely nothing about Canadian law.

In U.S. law, however the answer would be zero as well. The maximum loss that an investor can incur from an investment in an entity that has limited liability is the amount invested. Debtors of the entity have no claim whatsoever against investors with limited liability. So if you buy a share of google and google goes belly-up, you owe nothing to those with legal claims against google.

So in your example, the institutional investor would incur a loss of $2,000,000 but would not be responsible to the debtors for a single penny. The question is worded in such a way as to make sure that you understand the meaning of “limited liability.” The classic counter-example to limited liability is an ordinary partnership, where each partner is personally liable for the full amount of the partnership’s debt.

Thank you