LIMITED LIABILITY

A legal protection which does not go beyond the amount invested in a company or partnership. This liability is considered as one of the biggest advantages of investing in publicly listed companies. Investors have narrow exposure to financial risks the company may face, in the event firm declares insolvency or racks up liabilities, usually in millions or billions. A shareholder may partake in the company’s growth but the liability is limited to the amount he or she invested in that firm.

In a partnership, limited partners have restricted liability, while the overall partner has unlimited liability. Also called limited personal liability, it safeguard the investor's (or partner's) own assets from the risk of being seized in order to satisfy creditor claims in the event of a company’s (or partnership’s) bankruptcy.

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