Limited personal liability is a legal concept that is important to consider when starting or joining a business. The concept of limited personal liability means that an individual’s liability for obligations and activities belongs only to the company and not the individuals associated with it. Limited personal liability, in short, provides a “shield” between a person’s personal assets and the company’s obligations.
Importance of Limited Personal Liability
The importance of limited personal liability is two-fold: it protects the personal assets of individuals associated with a company; and, it encourages businesses to attract investors as no one can take personal ownership of the company’s loss or debts. Without the concept of limited personal liability, entrepreneurs who take big risks and fail may be left without personal assets due to creditors attempting to pursue their personal finances to pay off the company’s debts.
Modern Examples
A modern example of limited personal liability can be seen in the case of the popular ride-sharing mobile application Uber. Even though the company has faced numerous legal and financial challenges, the individual Uber drivers, who a majority of the time are legally employed as independent contractors, are not personally liable for those debts. In other words, the actual money Uber owes its creditors can not be taken from the drivers.
Bottom Line
In summary, limited personal liability is a legal concept that protects individuals from debts and liabilities incurred by the business and helps to lessen any risks associated with investing in a company. It is important to understand limited personal liability to ensure that one is not putting their personal assets at risk.