limited liability

Meaning

This term refers to a legal structure where a business owner's financial liability is limited to a fixed sum, most commonly the value of their investment in the company. If the company faces lawsuits or goes bankrupt, the owners' personal assets (like their home or savings) are protected. It is a fundamental concept in corporate law and entrepreneurship.

Examples

• One of the main advantages of forming a corporation is the benefit of limited liability.

  One of the main advantages of forming a corporation is the benefit of limited liability.

• The shareholders enjoy limited liability, meaning they are not personally responsible for the company's debts.

  The shareholders enjoy limited liability, meaning they are not personally responsible for the company's debts.

• Setting up a limited liability company protects your personal assets from business-related lawsuits.

  Setting up a limited liability company protects your personal assets from business-related lawsuits.

• Before investing, ensure you understand the extent of your limited liability under this partnership agreement.

  Before investing, ensure you understand the extent of your limited liability under this partnership agreement.

• The court ruled that the owners could not be sued personally due to the company's limited liability status.

  The court ruled that the owners could not be sued personally due to the company's limited liability status.

Common Mistakes

• ✗ The company has a limit liability.

  ✓ The company has limited liability.

  'Limited' must be an adjective (past participle) modifying 'liability,' not the noun 'limit.'

• ✗ Our personal assets are safe because we have limited responsibility.

  ✓ Our personal assets are safe because we have limited liability.

  In business law, 'liability' is the specific legal term for financial obligation, whereas 'responsibility' is too general.

Related Expressions

Practice

• By incorporating your business, you can protect your personal assets through ___.

  💡 A legal structure that restricts financial loss to the invested amount.

  Show answer

  limited liability

• The investors were relieved to know they had ___ if the startup failed.

  💡 Two-word phrase meaning financial risk is capped.

  Show answer

  limited liability