limitedliability

Limited liability is a legal principle whereby the financial risk of the owners of a business is limited to the amount they have invested in the entity, with personal assets protected from business debts and claims. The concept rests on the idea that the business itself is a separate legal person, distinct from its owners.

The most common vehicles offering limited liability are corporations (also known as companies), limited liability companies (LLCs), and limited liability partnerships (LLPs). In these forms, owners are not personally liable for the entity’s debts beyond their investment, though liability protection is not absolute. In a corporation, shareholders enjoy liability protection; in an LLC or LLP, members or partners are shielded from most debts and obligations, subject to certain duties and regulatory requirements.

The protective barrier is sometimes referred to as the corporate veil. Courts may pierce the veil to reach owners' personal assets in cases of fraud, underfunding, or commingling funds. Personal guarantees or illegal activity can also undermine the shield.

Limited liability affects taxation and governance. Some entities offer pass-through taxation, where income is taxed at owners’ personal rates, while others are taxed as separate taxpayers. Governance structures vary: boards of directors and officers in corporations; managers or members in LLCs.

While widely adopted worldwide, limitations and definitions vary by jurisdiction. In some systems, certain professionals and activities have special forms or exceptions, and liability limits may be lifted in cases of malpractice or fiduciary breach.