Limited Liability

Financial Dictionary -> Debt -> Limited Liability

Limited Liability is a status given to businesses that are incorporated, giving the organization a separate legal identity and protecting the shareholders against the actions of the business. In the eyes of the law the owners of the business, and the company itself are now two different things, meaning the owners are not fully liable for the business. The business almost has the same status of a person.

The business can take legal action against others and have legal action taken against it. This means that each owner now has the benefit of limited liability. Somebody who is self employed must take full responsibility for their business, monetary or otherwise.

The owner's investment in the business is represented by shares. The money which they have used to purchase said shares is the only finance they can lose if the company goes under or falls in to massive debt and is forced in to bankruptcy.

If they are declared bankrupt, all the assets of the business, not the owners will be used to pay off the debts. If that is insufficient, the creditors lose out. They cannot take the homes or personal property of the owners.

Many people argue that in today's modern world humans themselves are corporations, denoted by their 'person' and birth certificate. Technically if somebody does not have a birth certificate they are not subject to any laws beyond the original constitution. Equally if a business is not a corporation, they are not subject to laws associated with corporations. This is also why businesses can take legal action against 'persons' and vice versa. Technically a business could not take action against a breathing soul, but they are actually taking action against the documented Person, who is controlled by the living soul.