When looking to register a company, you need to pick a company structure. Every definition and advice piece you’ll read describes the benefits and shortfalls of different structures. You’ll find that the term limited liability is throw around a lot. The question is, what does it actually mean?
Limited liability means that you are only legally responsible (ie liable) of the financial investment or obligation you have made in a company or partnership. What do we mean? If you decided to invest £10 in a company you are only liable for those £10. Subsequently, if you are in debt or the company folds, the company itself will be responsible for it not you – well, other than your £10 investment. No one can come knocking on your door to take personal possessions to repay any debts. However, anything that is considered an asset of the company can be seized in the case of insolvency.
Limited liability is most often seen in reference to companies limited by shares, limited by guarantee and Limited Liability Partnerships (LLPs). These structures guarantee that the company will act as a legal entity and you will not be prosecuted for its shortcomings. Obviously, this is more expensive than operating as a sole trader, but it does give you a level of personal security.