What defines a current liability for a business?

A current liability is defined as a financial obligation that a business is required to settle within a year or a business cycle, whichever is longer. Therefore, the correct choice emphasizes that current liabilities involve debts owed to external parties that must be repaid within 12 months.

This short-term nature of current liabilities means that they are expected to be settled using current assets or by creating other current liabilities, illustrating the fluidity of a company's financial obligations. Common examples of current liabilities include accounts payable, short-term loans, and accrued expenses, all of which must be addressed promptly to maintain the business's financial health.

The other options do not accurately describe current liabilities. Long-term debt owed to creditors, for instance, is categorized as a non-current liability because it is not due within the immediate short term. Assets due for liquidation refers to current assets, as they are expected to be converted into cash within the year but do not pertain to liabilities. Lastly, equity held by shareholders represents ownership interest and is not a liability, as it does not involve repayment obligations.