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Limited Liability – a Definition

Logo for Quora, where Dana Shultz answered a question about the meaning of limited liabilityThis post on the meaning of the term limited liability is based on a Quora answer that I provided.

Please see What does limited liability and unlimited liability mean in case of companies?

Meaning of Limited Liability

Limited liability” means that the business owner’s personal liability (in contrast to the business’s liability) is limited to the amount invested.

So, for example, in the context of a corporation, a shareholder’s liability typically is limited to the amount of the capital contribution made in consideration for the shareholder’s shares. If the corporation fails, the shares will become worthless (the shareholder suffers a total loss of his or her investment). However, the shareholder will not be liable for the corporation’s unsatisfied obligations.

Meaning of Unlimited Liability

Unlimited liability” means that the business owner has unlimited personal liability for the business’s obligations.

A sole proprietorship is the classical example of such a situation. If the business lacks assets to satisfy its financial obligations, then the business owner’s personal assets are subject to being taken, to the extent required, to satisfy the business’s obligations.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
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