Limited Liability

Simply put, limited liability is the legal position of paying a limited amount of your or your company’s debts. More specifically, the term is applied when referring to a legal corporate structure that sets out limitation guidelines concerning a company’s debts and its members’ legal obligations regarding the company. In the UK, it arises from companies registered under the Companies Act 2006, and it is usually perceived to prevent loss in the event of liquidation or any unwanted possible legal involvement deriving from it. A corporate structure that involves a company, within the scope of limited liability, which is limited by shares, for instance, allocates members must pay the nominal value of their shares. If limited by guarantee, members are required to pay the nominal amount (the guarantee) to their company, should it culminate into a collapse. With the best interest of company creditors in sight, the member’s liability cannot be extinguished or reduced. The term ‘limitation’ itself focuses specifically as a warning for creditors, regarding the limit of member’s liability. It may also refer to a legally recognised partnership, called a ‘limited liability partnership’ which is defined under the Limited Liability Partnership Act 2000, apt to enter contracts on its own right and to correspondingly assume liability for debts under given contracts. This application of the term intends for a more flexible approach towards this type of business organisation, contrasting to the traditional approach with the corporate notion of limited liability.