Limited Liability

These days, many businesses and companies fall under the designation of “limited liability” partnerships, corporations, or other types of organizations. But what exactly does this term mean? How does it affect an institution’s financial obligations and operations, and what are the advantages and disadvantages of limited liability?

Definition and Origins

The idea of “limited liability” dates back to the 19th century, where it slowly evolved out of joint-risk stock ventures in United Kingdom. The basic premise is that those who hold a financial stake in a company’s success or failure are financially liable up to a specific amount but not beyond. This amount is generally equal to the person’s investment in the company, whatever form that might take.

In stark contrast to the state of unlimited liability facing those in general partnerships, if a person chooses to sue a limited liability partnership, he or she is thus suing the company and not the individual members.

Why Choose It?

Incorporating as a limited liability enterprise is extremely advantageous to those seeking to get a smaller business off the ground while minimizing personal financial risk in the accumulation of debts. In this way, it is considered to be a cornerstone of the modern capitalist approach to encouraging entrepreneurship.

Because of this very reason, limited liability has been the focus of a fair amount of controversy over the past hundred years or so in nearly every country in which it exists. Some critics see limited liability as equating too easily to limited responsibility, leading to reckless business pursuits that place too much burden on society at large.

Contact Us

For more information on the concept of limited liability and how it ties into issues of financial solvency, contact the experienced team of Boca Raton bankruptcy lawyers of Eric N. Klein & Associates, P.A., today by calling 561-353-2800.