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Limited Liability

 

Limited Liability is the term used to describe a restriction on the exposure of one or more parties. In the context of starting a business, it depicts whether or not the owners of an entity are at risk of having their own personal property seized to make good debts relating to a business they are involved in.

Limited liability is used found in UK companies and LLPs although some unlimited companies do exist.

Sole traders and ordinary partnerships do not have any restrictions which would prevent an unpaid creditor from seeking payment from their personal valuable items.

Shareholders within a limited company however are only liable to the extent of any unpaid share capital to which they have subscribed. Most new small business which trade as a company issue shares with a value of £1 each.

Thus, if one person purchased one hundred shares and agreed to pay for these at a later, the maximum which they could be liable for would be £100, the amount which they owned the company for their shares.

This maximum would exists irrespective of how much wealth the person owned personally and regardless of how many thousands or even millions the company was in debt.

In the above case the person has limited liability.

 
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