limited liability

A fundamental feature of corporations, whereby investors are liable only up to the amount of their investment.

Note: This principle is important for failing corporations because it holds that only the assets of the corporation, not the personal assets of its owners, can be liquidated (see liquidation) to cover the corporation's debts.

Limited Liability

A type of liability that does not exceed the initial amount a person invested into a partnership.

Investopedia Commentary

Limited liability refers to the terms of limited partnerships, which comprise at least one general partner, who takes on unlimited liability, and one or more limited partners, who would never lose more than their original initial investment in fulfilling the partnership's obligations. Limited liability protects a partner's personal assets from being liquidated should the company become insolvent.

Additionally, limited liability can refer to an investment that has limited downside risk, such as a long position in a stock, with which the investor can lose no more than his or her initial investment.

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See also: Beta, Eat Well, Sleep Well, General Partner, Limited Liability Company - LLC, Limited Partnership - LP, Limited Risk, Long, Risk, Risk Capital, Risk/Return Trade-off

limited liability

The liability of a firm's owners for no more capital than they have invested in the business. Essentially, the legal separation of ownership and liability means that a stockholder can lose no more than he or she has paid for the shares of ownership regardless of the firm's financial obligations. Limited liability is one of the major advantages of organizing a business as a corporation. Compare unlimited liability.