Business Law Basics: What is Limited Liability?

Business Law Basics: What is Limited Liability?

Starting a business is a big leap into personal independence. There are a lot of big perks to running your own small business, from being able to set your own hours to the control of choosing which paths you want your career to go down.

But there are challenges to face as well, and a lot to learn. Early on in the process, you’ll need to decide how you want to incorporate your business. Many business owners decide to form as an LLC.

But what is limited liability, and what does it mean for you as a business owner? Read on and we’ll walk you through what you need to know.

Liability as A Small Business Owner

When you do business, you open yourself to liability in your actions. Running a business is a complicated affair, and there are a few reasons someone might end up wanting to sue you.

It could be your creditors, for example, who are upset you don’t have the money that you owe them. It could be a consumer, who feels like they were harmed or misled by your product or service. It could be a number of other individuals and circumstances as well.

No one plans for and expects these kinds of situations to arise, but there is always a risk of something like this occurring. Negligence, non-payment of debts, and financial mismanagement could all leave you vulnerable under the eyes of the law.

Without some form of protection, that means these angry individuals could come after you personally. They could come for your personal money, your assets, and your life. Incorporating as an LLC can help you protect yourself against this type of litigation.

What Is Limited Liability?

To avoid personal liability and vulnerability, many business owners form as a corporation under the law. There are many different forms of incorporation, including S-Corps, LLCs, and others.

In general, limited liability means that a business owner is only liable for the amount the individual has invested in the business. It creates a separation between the individual and the business entity, and by doing so, it protects the personal assets of the business owner.

Under the law, corporations are seen as separate entities from owners and shareholders. So if a corporation is found guilty of wrong-doing, only the business and its assets will be in play in a court of law.

This is why so many business owners choose to incorporate as an LLC.

It’s important to do your research and ensure that LLC incorporation is right for you, however. You should ensure you know the difference between an s corp vs llc and that you pick the incorporation model that will best suit your business needs.

Running A Successful Small Business

There’s a lot to learn as a small business owner. If you were wondering, ‘what is limited liability?’ then the above information should prove helpful. Once incorporated, you can rest easy knowing you’re less vulnerable as a business owner.