Limited liability is a concept whereby a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of their investment in that company. This usually takes the form of that person's dividends in the company being zero, since the company has no profits to allocate. The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business (unlimited liability).
Although a shareholder's liability for the company's actions is limited, the shareholder may still be liable for its own acts. For example, the directors of small companies (who are frequently also shareholders) are often required to give personal guarantees of the company's debts to those lending to the company. They will then be liable for those debts in the event that the company cannot pay, although the other shareholders will not be so liable. This is known as co-signing.
Read more about Limited Liability: History, Justification, Criticisms
Famous quotes containing the word limited:
“In many ways, life becomes simpler [for young adults]. . . . We are expected to solve only a finite number of problems within a limited range of possible solutions. . . . It’s a mental vacation compared with figuring out who we are, what we believe, what we’re going to do with our talents, how we’re going to solve the social problems of the globe . . .and what the perfect way to raise our children will be.”
—Roger Gould (20th century)