Limited Liability: What does it really mean? Part 1-Definitions

The term limited liability gets used often but without a full understanding of what it really means. Business people want it but perhaps are not really sure what it means. Most lawyers and other professionals think they know what it means too. But do they really know? This post and the ones that follow will examine this legal principle in some detail.

Whether you consult, Black’s Law Dictionary or the popular Wikipedia, you will find that it means that the owner/investor in the business entity can lose his/her investment but no more. In essence, the owner can lose what they invest no more/no less.

If the owner/investor is also active in the business, however, he/she is liable for his/her personal negligence. That is, if the investor/owner commits a tort within the scope of business he/she is responsible for it. Also, it is quite normal for investor/owners in small businesses to be a personal guarantor of business bank debts or other debts such as leases.

Thus, if the investor/owner  has not committed a tort nor personally guaranteed any debts, he/she will only lose his/her investment.

There may also be statutory responsiblities for certain debts that  will be discussed later.

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