Limited Liability in a Company Essay Example | Topics and Well Written Essays - 1250 words

limited Liability in a Company - Essay ExampleThe word limited indicates that the liability of members in respect of companys debts and other liabilities is limited to amount carryd or undertaken by the member to contribute in respect of shargon capital of the company. Limited liability protects shareholders against any financial loss special the investment4. It has been termed as the greatest single discovery of modern times, even more than steam and electricity.5As per Ross Grantham and Charles Rickett6, in that location are certain economic justifications for such restriction of liabilities of a member of a limited ashes corporate. The limited liability reduces the shareholders responsibility to monitor corporate managers because the financial consequences of company failure on shareholders are limited. Corporate managers work efficiently for profit maximization because limited liability induces free share transferability that would soldiery shareholders to withdraw funds fr om unprofitable ventures. Directors who run the company can take run a risky decisions as swell as they aware that shareholders have nothing at stake.7 That is why Tony Orhnial8 states that limited liability is not related to company structure but to the businesss economic risks, and is instrumental to the encouragement of entrepreneurial risk bearing and innovative attitude. The principle of creating a limited liability company is that debts in character reference of failures cannot be carried back to founders9.Limited liability works as an extra non- taxable incentive for investments withal dividends and capital gains on transfers of shares that are taxable. Moreover, the attribute of limited liability is quite significant when work locale, machinery, chemicals, or even artwork are potentially hazardous10 Limited liability has helped to develop open share market.11 The primary objective of limited liability is toencourage investment by the public in risk-taking enterprises by insulating the investing public from debts of the enterprise.