limited liability

Limited liability is the fundamental premise of company law that states that the shareholders of a company are not liable for the acts and omissions of the company. The liability of shareholders in a company is limited to the fully paid up value of the shares owned by the shareholder.

In a company limited by guarantee, the liability of the shareholders is limited to the amount of the guarantee. The effect of limited liability is that shareholders' personal assets are sheltered, which is not the case if the shareholder trades in their own name as a sole proprietor or a partnership.

Usage: The shareholder's liability was limited to £1.00 due to the effect of the limited liability of the company.

Related Words: separate legal entity; company; public company; private company; shareholders; directors; shares; share capital.