Accounting – 7.1 Accounting principles | e-Consult

Limited liability means that the personal assets of the owners (shareholders) are protected from business debts. The liability of the owners is limited to the amount they have invested in the company's shares.

Limited liability is an important feature of a limited company because it encourages investment. Potential investors are more likely to invest in a company if they know their personal assets are not at risk if the company incurs debts. This allows the company to raise more capital.

An example of a business structure that offers limited liability is a private limited company (Ltd). In a Ltd company, the shareholders' liability is limited to the amount unpaid on their shares.