Limited liability

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The restriction of an investor's potential losses, usually to the amount invested.

Without the privilege of limitation, investors would have unlimited liability for a company's debts.

The option of limited liability is one of the important advantages of incorporation.

Less commonly in the commercial context, but often used for social or public interest bodies, a company member's liability may alternatively be limited to an amount guaranteed by the member.

The purpose is to encourage enterprise by reducing the risk of personal bankruptcy.

Balancing the benefits of limited liability for the members, the company itself must prepare and file financial and other information at the companies registry, to enable creditors and others to access data relevant to the creditworthiness of the organisation.

Another form of limited liability structure is a limited liability partnership.

See also