What is Limited Liability?
OhioMBE – March 15, 2014
By Ambrose Moses, III
Jason tells Sarah that he wants to start a lawn care business but he needs money for some of the equipment and tools.
Sarah knows that Jason has worked in lawn care for other people for several years. She thinks that he has the necessary skills and could be successful at it. However, Sarah recalls a couple of stories Jason told her over the years about people sometimes getting injured and the occasional troublesome customer. Sarah has a nice job and some savings. She wants to invest in Jason’s business but does not want to be exposed to all of that financial risk.
What is limited liability?
If a business owner has “limited liability,” it means that he or she is not personally responsible for business debts and obligations of the corporation. In other words, if the corporation is sued, only the assets of the business are at risk, not the owners’ (i.e. shareholders) personal assets, such as their houses, cars, or personal bank accounts. Thus, while the business owner may potentially lose everything they invested into the business, their personal assets are not at risk.
The corporation’s owners must comply with certain corporate formalities, keep up with paperwork requirements, and adequately fund (“capitalize”) their business to maintain this limited liability privilege.
Limited liability, traditionally associated with corporations, is the main reason most people consider incorporating. However, other business structures, such as limited liability companies (LLCs), now offer this limited personal liability to business owners. Sole proprietorships and general partnerships do not.
Limited liability is an important concept in the world of business. Limited liability allows individuals to take the risk of investing in and operating a business without exposing all of their personal assets to the risk of loss.
For more information contact Ambrose Moses, III, an attorney with Moses Law Office. Email: info@MosesLaw.pro. Telephone: (614) 418-7898.
