limited personal liability

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Limited personal liability generally means that an investor or other individual in a legal capacity can be held responsible for liabilities or damages of the business only in select circumstances or not at all. The term applies to a variety of different legal relationships such as corporations, partnerships, limited liability corporations (LLCs), or trusts. In these instances, a person with limited personal liability usually cannot be sued personally to cover any liabilities; the person only may lose the amount invested into the entity. For example, stockholders in a corporation in almost all circumstances cannot be held liable for anything, facing only the potential loss in the price of their shares. However, there often are important exceptions to limited personal liability that vary depending on the relationship. For example, in LLCs an investor with limited liability could be held personally liable for debts if they participated in some form of deception. The same can apply to settlors of a trust who may be reached by creditors in some circumstances if fraud is involved.

[Last updated in February of 2022 by the Wex Definitions Team]