Limited liability allows investors to purchase shares in a partnership or limited liability company and limit their liability to only the amount invested. If the company fails and owes millions of dollars to creditors, investors are protected. Creditors cannot come after the investors. If shareholders did not have this protection, they would be more unwilling to invest in companies.
Owners of a business can have liability exposure. Owners who start a business may personally guarantee loans made by the business. If the business fails, these owners are liable for paying back the loan. In this scenario, any shareholders remain protected and only lose their investment.
