Limited liability

Owners' losses being capped at what they invested, with their personal assets beyond the reach of the business's creditors. It is what lets outside investors own shares in firms they do not run.

Where you will meet it

Limited liability appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain the legal forms a business can take and what each means for its owners
  CFA Level I · Corporate Issuers

  “A corporation gives shareholders limited liability, perpetual existence and transferable ownership, at the cost of separating ownership from control and, in many jurisdictions, double taxation of distributed profits.”

• Contrast what lenders and shareholders are entitled to and what drives each group
  CFA Level I · Corporate Issuers

  “Shareholders hold the residual claim, keeping everything left after creditors are paid, with unlimited upside and, thanks to limited liability, a loss capped at their investment.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with L · Glossary