What is Limited Liability?

Limited liability is a legal structure that protects the assets of a business founder from the liabilities of their business. Usually, it is a corporation, limited liability company, or limited partnership.

When you properly form a limited liability entity, it becomes a separate legal entity from the owner. If it is properly formed and properly run, all the owner risks are the assets of the entity and their capital contributions.

Say you have an LLC that runs a catering company. One of your drivers runs a stop sign and hits a school bus. The injuries exceed your commercial auto policy and the parents sue you personally for their damages. In most circumstances, (stay tuned next week for more about this) that suit against you personally would be dismissed, and the injuries and damages would have to be satisfied with the assets of the catering company. All the catering company owner would lose is their capital contributions to the catering company. The owner’s house, car, retirement funds, and bank accounts would be safe.