What Is A Limited Liability Corporation?

When you purchase stock in a corporation, what is meant by the term "limited liability"?

• Answer:

  Under the law, a limited liability company is considered to be a person with the same rights as individuals to earn income and hold property. Actions by the board of directors and the executives of the company are deemed to be the actions of the corporation itself and not it's individual members. Hence liability for its actions are limited to the corporation and, in theory, are not passed on to the directors or other shareholders. So in other words - if you owned shares of Exxon when the Valdes spilled oil all over the Alaskan coast line, although you are technically an 'owner' of the company, you cannot be sued for its actions because liability stops at the Corporation and does not pass through to its owners. More from a taxation standpoint, if the corporation becomes insolvent, your personal assets are not going to be seized as part of the collection of any debts because as a shareholder you have limited liability for those leans against the corporation.