Limited liability is a legal concept that protects the personal assets of business owners, shareholders, or members from the debts and liabilities of the business entity. This means that in the event of financial losses, creditors can only go after the business’s assets and not the personal assets of the owners or shareholders. Limited liability provides a significant level of protection for individuals involved in a business, and it is a fundamental principle in various forms of business entities.
Limited liability allows entrepreneurs and investors to take on business risks without risking their personal financial well-being. This encourages entrepreneurship and investment in the economy.
A business with limited liability is considered a separate legal entity from its owners. This distinction is important for legal purposes, allowing the business to enter contracts, own property, and be involved in legal actions.
While limited liability generally protects personal assets, there are exceptions. Personal guarantees or co-signing on loans, commingling personal and business finances, fraudulent or illegal activities, and failure to meet legal requirements can potentially expose owners to personal liability.
Limited liability is a key factor that attracts investors to businesses. It provides a level of protection that encourages individuals and institutions to invest capital in the company.