limited liability

Examples of limited liability in the following topics:

• Pros and Cons of a Corporation

  • The corporate structure is less simple to found and maintain but has the advantages of limited liability and perpetual life.
  • In many jurisdictions corporations, whose shareholders benefit from limited liability, are required to publish annual financial statements and other data, so that creditors who do business with the corporation are able to assess the creditworthiness of the corporation and cannot enforce claims against shareholders.
  • Shareholders, therefore, experience some loss of privacy in return for limited liability.
  • They are limited in liability to the amount they have invested in the corporation.
  • This limited liability also makes financing more attractive from a risk perspective.

• Pros and Cons of a Partnership

  • The partnership structure has the benefit of simplicity and control but the drawback of personal liability for the partnership's activities.
  • Limited partnerships allow limited liability for some partners who have no management authority, and in some cases (depending on the jurisdiction) limited liability partnerships provide for limited liability for all partners.

• Formation of the Corporation

  • Registration is the main prerequisite to a corporation's assumption of limited liability.
  • Registration is the main prerequisite to a corporation's assumption of limited liability.
  • In most countries, corporate names include a term or an abbreviation that denotes the corporate status of the entity (for example, "Incorporated" or "Inc." in the United States) or the limited liability of its members (for example, "Limited" or "Ltd.").
  • Their use puts everybody on constructive notice that they are dealing with an entity whose liability is limited, and does not reach back to the persons who own the entity: one can only collect from whatever assets the entity still controls when one obtains a judgment against it.
  • Shareholders, therefore, experience some loss of privacy in return for limited liability.

• Corporate Taxes

  • Tax law contains built-in trade-offs for each corporate form, and companies often must give up some liability protection or flexibility.
  • Owners of C corporations are personally protected from any liability of the company - an idea known as the corporate veil.
  • However, owners enjoy the same limited liability awarded to C corporations.
  • The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is taxation on the ownership level.

• Forms of Business Organizations

  • Partnership is defined as general or limited liability.
  • A limited liabilitypartnership restricts liability and helps protect the partners' assets that he or she does not use directly in the business.

• Characteristics of a Corporation

  • The individuals within an organization, granted it is a limited liability organization, are somewhat insulated from the broader failings of the organization.
  • This means that debts being taken out on behalf of the organization are not the liability of the individuals working there, but instead a liability of the legal entity that is called the corporation.

• Limitations of Financial Statements

  • Financial statements can be limited by intentional manipulation, differences in accounting methods, and a sole focus on economic measures.
  • One limitation of financial statements is that they are open to human interpretation and error, in some cases even intentional manipulation of figures.
  • Additionally, in terms of corporate governance, managing officials like the CEO and CFO are personally liable for attesting that financial statements are not untrue or misleading, and making or certifying misleading financial statements exposes the people involved to substantial civil and criminal liability.
  • Another set of limitations of financial statements arises from different ways of accounting for activities across time periods and across companies.
  • Financial statements can include a number of inaccuracies and limitations that affect the way a company can be viewed.

• Components of the Balance Sheet

  • The balance sheet relationship is expressed as; Assets = Liabilities + Equity.
  • The balance sheet contains statements of assets, liabilities, and shareholders' equity.
  • Liabilities are the debts owed by a business to others–creditors, suppliers, tax authorities, employees, etc.
  • A business incurs many of its liabilities by purchasing items on credit to fund the business operations.
  • Differentiate between the three balance sheet accounts of asset, liability and shareholder's equity

• Limitations of the Balance Sheet

  • The three limitations to balance sheets are assets being recorded at historical cost, use of estimates, and the omission of valuable non-monetary assets.
  • Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year.
  • There are three primary limitations to balance sheets, including the fact that they are recorded at historical cost, the use of estimates, and the omission of valuable things, such as intelligence.

• Limitations of the Statement of Cash Flows

  • The statement of cash flows is a useful tool in identifying organizational liquidity, but has limitations when it comes to non-cash reporting.
  • Provide additional information for evaluating changes in assets, liabilities, and equity
  • However, to offset some of this, governments have enacted various requirements on the statement of cash flows to limit any information that may be misleading.