Overview of Limited Liability
Limited liability comes with advantages and disadvantages. It is desirable in industries subject to massive losses, such as insurance. Owners of limited liability companies (LLCs) are not personally liable for the company’s debts or liabilities. The LLC carries the same protections of a corporation but is taxed like a sole proprietorship or partnership. A limitation of liability clause is useful for businesses entering high-risk transactions. Placing a limit on damages can mean the difference between ensuring rectification of wrongs and going bankrupt from paying damages. Seek legal advice prior to signing anything.
Types of Liability
Liability can be limited through contractual clauses. In a company limited by shares, liability of shareholders is limited to the amount paid for shares; in a company limited by guarantee, liability is limited to the guarantee amount. This allows for more accurate budgeting and management. With unlimited liability, there is no limit to the amount you can be liable for. This applies to sole traders and partners in ordinary partnerships. Creditors can make claims on personal assets.
Considering Limited Liability
When considering limited liability, it’s essential to weigh the advantages and disadvantages. Owners of limited liability companies (LLCs) are not personally liable for the company’s debts or liabilities. However, owners must adhere to various standards when maintaining a corporation to retain limited protections. Talk to an accountant when thinking about limited liability to decide the best structure. Limited companies have limited liability. Sole traders and partners have unlimited liability.