Limited Liability

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

Other articles related to "limited liability, liability":

Limited Liability Act 1855
... The Limited Liability Act 1855 (18 19 Vict c 133) was an Act of the Parliament of the United Kingdom that first allowed limited liability for corporations that could be established by the general public in the UK ...
Limited Liability - Criticisms
... Some critics argue that limited liability favors creditors who are in the position to negotiate secured terms, whereas small creditors' debts are left unsecured ... Others argue that while some limited liability is beneficial, the privilege ought not to extend to liability in tort for environmental disasters or personal injury ... in his Power and Market (1970), criticized limited liability laws, while also maintaining that similar arrangements may emerge in a free market, stating ...
Lawfirm - Arrangements
... the attorney is the law firm and is responsible for all profit, loss and liability General partnership, in which all the attorneys who are members of the firm share ... The LLP is taxed as a partnership while enjoying the liability protection of a corporation ...
Maiden Lane Transactions - Bear Stearns Bailout
... Bank of New York extended a $30 billion credit line to the limited liability company to facilitate the unwinding of these assets over time ... Maiden Lane was organized as Delaware Limited Liability Company on April 29, 2008, and registered to do business as a foreign limited liability company in the state of New York on June 26, 2008 ...
Mochibun Kaisha - Types
... in which all members have unlimited liability for the company's debts (similar to a general partnership) Gōshi gaisha, in which some members have unlimited liability and some have limited liability (similar to a ... limited liability company) Mochibun kaisha are formed by preparing articles of incorporation and depositing the articles with a local Legal Affairs Bureau ...

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