Also known as:limited-liability · LLP · LLC liability shield
Written by attorneys · grounded in primary & secondary sources — see below
A legal protection under which owners of a business entity are not personally liable for the entity's debts or obligations beyond the amount of their investment in the entity. The entity itself bears responsibility for its own liabilities as a separate legal person. Creditors of the entity therefore cannot reach the personal assets of the owners to satisfy entity obligations.
Sources & Authorities
How it applies
Common Examples
6
LLP Partner Avoids Personal Debt
Luke Latham is a partner in Legacy Motors, a limited liability partnership. The firm incurs a large obligation to a parts supplier while operating as an LLP. Luke faces no personal liability for that obligation solely because of his status as a partner.
LLC Members Shielded in Suit
Layla Lane and Levi Lowe form Linden Logistics as an LLC to run a delivery service. A customer sues the company for breach of contract and seeks to reach the members' personal bank accounts. The members' personal assets remain protected because the LLC alone bears the liability.
LP Name Signals Liability Status
Lila Lin organizes Lakewood Manufacturing as a limited partnership that is not an LLLP. The name must include LP to alert creditors that only limited partners enjoy protection from personal liability for firm debts. General partners remain exposed under the default rules.
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Cases
Uniform Acts
Model Codes
Casebooks
Hornbooks
Study Supplements
Dictionaries
LLC Surplus Distribution Order
Lorenzo Lugo and Latoya Lane wind up their LLC after paying all creditors. The surplus first returns unreturned contributions to members before any pro-rata distribution. Limited liability ensures members lose only their invested amounts and face no further personal exposure.
LLLP Name Requirement
Legacy Motors registers as a limited liability limited partnership. Its name must contain LLLP to signal that all partners receive limited liability protection. Creditors therefore know they cannot pursue partners personally for partnership obligations.
Corporate Advantage in Speech
Loyal Insurance, a corporation, uses its resources to fund political speech. Its owners enjoy limited liability, which distinguishes the entity from natural persons and permits the corporation to amass and deploy capital without exposing shareholders to personal risk.
Citizens United v. Federal Election Commission558 U.S. 310, 352 (2010)
Common questions
Frequently Asked
4
How does limited liability differ from a general partnership?+
In a general partnership all partners are jointly and severally liable for partnership debts. Limited liability shields owners of corporations, LLCs, LLPs, and LLLPs so that creditors cannot reach personal assets beyond the owners' investment.
Supporting sources
Does limited liability apply after an LLC dissolves?+
Yes. Limited liability continues to protect members from personal liability for entity obligations even after dissolution and during winding up. Members lose only their unreturned contributions.
Supporting sources
Can creditors pierce limited liability by suing owners directly?+
Courts may pierce the veil only in exceptional cases of abuse such as undercapitalization or fraud. Absent such circumstances, limited liability prevents creditors from reaching owners' personal assets.
Supporting sources
Why must an LLLP use a specific name designation?+
The LLLP designation notifies third parties that every partner enjoys limited liability. Without it, the entity risks being treated as an ordinary limited partnership in which general partners remain personally liable.
Supporting sources
558 U.S. 310, 352 (2010)Business Associations
…554 U. S. , . Distinguishing wealthy individuals from corporations based on the latter’s special advantages of, e.g., limited liability, does not suffice to allow laws prohibiting speech. It is irrelevant for First Amendment purposes that corporate funds may “have little or no correlation to the public’s support for the…