Limited personal liability means that an individual's financial responsibility for the debts and obligations of a company is restricted to their investment or involvement in the business, protecting their personal assets from business-related liabilities.
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Last Updated: January 9, 2026
The limited personal liability business definition refers to when a business owner or investor’s liability is limited to the amount of their investment in the business. In a limited liability situation, the business owner is treated as a separate entity from the business entity. So if the business incurs a debt, only the business entity is responsible.
When a business with limited personal liability owes money to a customer, the customer can only get their money back from the business. Customers can’t go after the owner’s accounts.
Only certain business structures offer limited personal liability to their owners. These businesses include limited liability companies (LLCs), corporations, and limited partnerships. Conversely, in sole proprietorships and general partnerships, each owner is personally liable for the business’s obligations. ZenBusiness helps entrepreneurs form a limited liability entity, such as an LLC or Corporation, with their ZenBusiness Formation Plans.
With limited personal liability, an individual’s assets are protected even if someone sues their business. Customers or creditors can’t sue the owner if the business doesn’t pay a loan or doesn’t meet its obligations. Limited personal liability advantages include the fact that a business owner can invest in a company knowing that a creditor can’t touch the individual’s assets if someone sues the company.
Many believe that limited personal liability is the same as no personal liability. This is incorrect because there are instances where the owner of an LLC or corporation may be personally liable. That’s one of the limited personal liability disadvantages: it’s not absolute. For example, if the LLC owner personally guarantees a loan for the LLC, they would be individually liable if the LLC defaults.
The owner of an LLC or corporation could also be personally liable if they commingle funds (mixing their personal and business funds), use business funds for personal expenses, or engage in fraudulent activity. A court or a creditor may be able to get around the limited liability of a corporation to hold an owner personally responsible for these problematic activities. This is referred to as “piercing the corporate veil.”
Suppose someone formed an LLC with limited personal liability for owners, and their purpose is to sell candy. The LLC rents a storefront. The owner invests money into the LLC to pay for start-up expenses. Unfortunately, the LLC hasn’t sold much candy and can’t pay its rent. If the landlord sued the LLC for unpaid rent, the landlord could get a judgment against the LLC. This means that the landlord could collect against the LLC’s assets, including whatever the owner invested in the LLC. Yet, the landlord can’t go after the owner’s personal assets for the LLC’s unpaid rent.
Limited personal liability means that a business owner’s assets are protected from debts and liabilities that the business may incur, except in limited circumstances. Only specific business structures offer limited personal liability to their owners.
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ZenBusiness can help entrepreneurs understand the different business structures that offer limited personal liability; they can also help entrepreneurs choose and start the limited liability business that best suits their needs. Plus, after the business is formed, ZenBusiness can help the company stay compliant with its Worry-Free Compliance service.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
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