What is “limited liability” and why is it important?
If a business owner has “limited liability,” it means that he or she is not personally responsible for business debts and obligations of the corporation. In other words, if the corporation is sued, only the assets of the business are at risk, not the owners’ (shareholders) personal assets, such as their houses or cars. The corporation’s owners must comply with certain corporate formalities, keep up with paperwork requirements, and adequately fund (“capitalize”) their business to maintain this limited liability privilege. Limited liability, traditionally associated with corporations, is the main reason most people consider incorporating. However, other business structures, such as limited liability companies (LLCs), now offer this limited personal liability to business owners. Sole proprietorships and general partnerships do not.
If a business owner has “limited liability,” it means that he or she is not personally responsible for business debts and obligations of the corporation. In other words, if the corporation is sued, only the assets of the business are at risk, not the owners’ (shareholders) personal assets, such as their houses or cars. Shareholders must comply with certain corporate formalities and keep up with paperwork to maintain this limited liability privilege. Limited liability has traditionally been associated with corporations, and is the main reason that most people consider incorporating. However, other business structures, such as limited liability companies (LLCs), now offer this limited personal liability to business owners. Sole proprietorships and general partnerships do not.
