limited liability

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The system by which shareholders in a company are not liable for its debts beyond the nominal value of their shares. Where shares are fully paid up, with limited liability the shareholders cannot be called on for any further funds. If shares are partly paid up, limited liability means that shareholders are liable only to the extent of the unpaid portion of the nominal value of their shares. Limited liability makes it possible to raise capital for purposes considered too risky for investors to be willing to provide funds on the basis of unlimited liability.

Subjects: Law — Economics.

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