What does it mean for a company to have limited liability?

It is common to ask ourselves what it means for a company to have limited liability. And to understand it we must pay attention to the partner.

The limited liability of a partner is the defining feature of capital companies, such as limited liability compamies or public limited corporations. It implies that the partner does not respond with his personal assets for the debts that the company may contract, but only with the capital that he has contributed to it.

In this way, the partner limits his risk and can undertake projects without fear of losing all his assets. Limited liability is an advantage for partners, but it also implies some obligations, such as the registration of the company in the Mercantile Registry and compliance with legal and statutory regulations.

In addition, limited liability is not absolute, since there are some situations in which the partner may have to respond with his personal assets, and these are assessed by law, such as in the case of irregular companies, the irregular sole proprietorship, the liquidation of the company with share capital lower than the legal minimum or by the so-called “doctrine of lifting the veil”, which is the one that is applied to correct the abuses that are committed when the company is used to evade or default on obligations and debts, that is, to prevent or punish legal fraud.

In these cases, the solution is to annul the limitation of liability, for which the partners will have to respond with their personal assets, since the partner is considered to be acting in bad faith, abusing his position or failing to comply with their legal obligations or statutory.

Limited liability is regulated by the Capital Companies Law ( in Spanish abbreviated as LSC), although it has recently been amended by what is known as the «Law create and grow».

Related concepts

• Limited Company
• Public Limited Company
• Limitation of liability clause
• Joint and several liability, in what do they differ?