What does limited liability entail for investors in a corporation?

Limited liability is a fundamental principle associated with corporations that protects investors' personal assets. When investors put their money into a corporation, they are essentially purchasing shares of that company. Under limited liability, these investors are only responsible for the debts and obligations of the corporation up to the amount they invested. This means if the corporation incurs debt or faces bankruptcy, investors can only lose the capital they contributed and are not personally liable for any additional debts the corporation has.

This structure encourages investment in corporations, as it mitigates the financial risk associated with ownership. Investors can feel more secure knowing that their personal assets, such as savings or personal property, are not at risk if the corporation fails. Thus, the principle of limited liability is essential for fostering entrepreneurship and economic growth, as it allows individuals to invest in businesses without the fear of unlimited financial exposure.