In a limited company the liability of the shareholders is, you guessed it, limited. This means that if the company were to become insolvent, the shareholders are only liable for the shares that they own. For example, if I owned 50 shares worth £1 each in a limited company that became insolvent, I would only be liable for £50.
This is one of the major draws for forming a limited company over becoming a sole trader (of course there are other considerations that must be taken into account). Sole traders are liable for debts without limit; shareholders of limited companies have limited liability. Hence limited.
This post was brought to you by Mathew Aitken at Companies Made Simple – The Simplest Company Formation Service
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