Final answer:
Limited liability insulates the personal assets of company members from the business's financial and legal obligations. Shareholders risk only the money they have invested in the corporation, and this protection encourages investment and growth while shielding personal wealth.
Step-by-step explanation:
The principle of limited liability applies to the members of a company by ensuring that they are not personally responsible for the company's debts or legal obligations. Instead, shareholder liability is limited to the amount they have invested in the corporation. This means that if the business incurs debt or faces legal issues, the personal assets of the members, such as their homes, cars, or personal bank accounts, are protected. Furthermore, this structure facilitates companies in easier access to funding for expansion or other business purposes, by allowing them to raise money through the sale of stocks or the issuance of bonds.
A corporation is a business structure that views the company as its own legal entity, distinct from its owners. It provides protection from liability to individual shareholders, thereby allowing them to take business risks without the fear of losing personal wealth beyond what they have invested in the business. However, there are some drawbacks, especially in a partnership, where partners are responsible for each other's actions and the life of the business can be limited when a partner leaves or passes away.