Concept Of Limited Liability
Concept of Limited Liability
Personal Definition: In the event a liability arises, limited liability prohibits the available assets to only the business entity itself. Essentially, the investor cannot lose more than he or she puts in. This protects the individuals working for the entity on a personal level. Nobody can attack his or her personal assets, unless the individual exhibits some form of activity that qualifies for piercing the corporate veil.
Investopedia Definition: A type of liability that does not exceed the amount invested in a partnership or limited liability company. The limited liability feature is one of the biggest advantages of investing in publicly listed companies. While a shareholder can participate wholly in the growth of a company, his or her liability is restricted to the amount of the investment in the company, even if it subsequently goes bankrupt and racks up millions or billions in liabilities.
Importance of Limited Liability:
As stated earlier in the previous two definitions, it protects individual’s personal assets (house, car, etc…) from lawsuits or bankruptcy. In other words, the individual is not personally responsible for debts or other obligations of the company. Generally, you must be incorporated to obtain limited liability (i.e. S Corp and C Corp). However, LLC’s are becoming more popular due to its limited liability and tax advantageous qualities.
When the corporate veil should be pierced:
“Courts might pierce the corporate veil and impose personal liability on officers, directors, shareholders, or members when all of the following are true.
a. There is no real separation between the company and its owners. If the owners fail to maintain a formal legal separation between their business and their personal financial affairs, a court could find that the corporation or LLC is really just a sham (the owners' alter ego) and that the owners are personally operating the business as if the corporation or LLC didn't exist. For
Personal Definition: In the event a liability arises, limited liability prohibits the available assets to only the business entity itself. Essentially, the investor cannot lose more than he or she puts in. This protects the individuals working for the entity on a personal level. Nobody can attack his or her personal assets, unless the individual exhibits some form of activity that qualifies for piercing the corporate veil.
Investopedia Definition: A type of liability that does not exceed the amount invested in a partnership or limited liability company. The limited liability feature is one of the biggest advantages of investing in publicly listed companies. While a shareholder can participate wholly in the growth of a company, his or her liability is restricted to the amount of the investment in the company, even if it subsequently goes bankrupt and racks up millions or billions in liabilities.
Importance of Limited Liability:
As stated earlier in the previous two definitions, it protects individual’s personal assets (house, car, etc…) from lawsuits or bankruptcy. In other words, the individual is not personally responsible for debts or other obligations of the company. Generally, you must be incorporated to obtain limited liability (i.e. S Corp and C Corp). However, LLC’s are becoming more popular due to its limited liability and tax advantageous qualities.
When the corporate veil should be pierced:
“Courts might pierce the corporate veil and impose personal liability on officers, directors, shareholders, or members when all of the following are true.
a. There is no real separation between the company and its owners. If the owners fail to maintain a formal legal separation between their business and their personal financial affairs, a court could find that the corporation or LLC is really just a sham (the owners' alter ego) and that the owners are personally operating the business as if the corporation or LLC didn't exist. For