Concept of Limited Liability
The concept of Limited
Liability is often misunderstood in the corporate world as no responsibility.
A Company or Limited
Liability Partnership (LLP) is an incorporated entity having separate legal
identity in the eyes of law. The Shareholders and Partners are the owners of
the organisation. The Director or Designated Partner is a representative of the
legal entity appointed by the owners to have a human interface with the
regulators and all other stakeholders.
Usually in small Company,
a shareholder becomes Director and in LLP, a Partner becomes designated partner.
In their capacity as owners and representatives, they are different roles to
play.
Limited liability
means that the personal financial liability of a shareholder or a partner is
limited to the extent of a fixed amount that he has agreed to invest in a
company or a limited liability partnership. In other words, the investor is not
personally liable for the business debts and liabilities of the organisation.
In the unfortunate event of winding up of the incorporated business, their
financial liability is limited to the unpaid amount of agreed contribution by
shares or otherwise. On the contrary, the liability of sole proprietors and
partners in general partnership are unlimited and even their personal assets
are exposed to pay off the business debts and other business liabilities.
The Directors of the
company are the persons liable to run the day to day business of Company and
are liable to comply with various legal requirements. In case of LLP,
Designated Partner is responsible for the legal compliances. In case of default
to comply with any legal requirements they are personally responsible for the
same. In their role as a Director or Designated partners, the liability is
unlimited and are exposed to penal provisions under the law for the
noncompliance of respective regulations.
