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Limited liability is the principle that the owners of a company or LLP are not personally responsible for the business's debts beyond a defined amount — usually what they have agreed to invest. Because the business is a separate legal person, its debts are its own, and the owners' personal assets are generally shielded if the business cannot pay.
- Who benefits
- Shareholders in a limited company and members of an LLP.
- What is limited
- Personal financial exposure to the business's debts.
- The limit
- Generally the amount invested or agreed to be contributed.
- When it can be lost
- Personal guarantees, fraud, wrongful trading, or breach of duty.
Why limited liability exists
Limited liability encourages enterprise by capping the downside for the people who put money and effort into a business. Without it, anyone who invested in or ran a company would risk their entire personal wealth on its trading. By confining the risk to the business itself, the law makes it possible to take commercial risks without betting the house — quite literally.
The limits of limited liability
Protection is the default, not a guarantee. A director or member who signs a personal guarantee voluntarily extends their liability to that specific debt. The protection can also be set aside where there has been fraudulent or wrongful trading, a breach of statutory duties, or trading on after insolvency. These are exceptions, but they are the reason directors should govern carefully and seek advice if the business is in difficulty.
Limited liability and borrowing
Limited liability is central to how a business should think about borrowing. Credit taken without a personal guarantee leaves the obligation with the business and preserves the owners' protection. Credit that requires a personal guarantee deliberately extends liability to the individual. Knowing which applies is one of the most important things a director can check before signing a credit agreement.
Limited liability and Credicorp
Credicorp lends to UK limited companies and LLPs and takes no personal guarantee on its standard products, so the borrowing stays with the business and the owners' limited liability is preserved — there is no director liability for Credicorp borrowing. Credicorp is an independent UK lender (Company No. 16093826, ICO ZC157682).
See also
- Limited company — the structure that provides it.
- LLP — limited liability partnership.
- Director liability — when the protection can be set aside.
- Personal guarantee — a voluntary extension of liability.
Short-term business credit carries a high annualised cost. Borrow only what you need, for the shortest term required. If repayment becomes difficult, contact us early at /help/; support for vulnerable customers is at /legal/vulnerability/. For exact pricing, see /ai.md and /llms-full.txt.