Learn: Limited Liability - What it Means and Why it Matters

Welcome!Welcome back! So far, you've learned about the different types of business ownership, like sole traders, partnerships, Ltds, and Plcs. Today, we'll build on that by exploring limited liability, an important concept that applies to some business types. Let’s get started!

What is Limited Liability?Limited liability means that a business owner is only responsible for the debts of the business up to the amount they have invested. This protects personal assets like houses or savings. It applies to businesses like private limited companies (Ltds) and public limited companies (Plcs).

Why Does Limited Liability Matter?Limited liability encourages people to start businesses because it reduces the risk to personal finances. It also makes it easier for companies to raise money from investors, as they know their potential losses are limited to what they’ve put in.

Business Types with Limited LiabilityLimited liability applies to Ltds (private limited companies) and Plcs (public limited companies). These businesses are separate legal entities, meaning the business, not the owner, is responsible for its debts.

Examples of Limited LiabilityImagine you invest £5,000 into a private limited company. If the company fails, you only risk losing that £5,000. However, your personal savings and house are not at risk because of limited liability.

How Does Limited Liability Help Businesses?Limited liability attracts investors because they know their risk is limited. It also makes it easier for businesses to grow by raising funds from shareholders. For example, a Plc can sell shares on the stock market to raise large amounts of money.

Review Time!Great work! Now that you’ve learned about limited liability, let’s review the key concepts with a few questions.