Explain the concept of limited liability and the advantages of a company over an unincorporated business.

Limited liabilitymeans that on liquidation, the liability of the members of a limited liability company or limited partnership for the debts incurred by the entity is limited to the capital they have invested (including any amount owing). The liability of the members can be limited by shares or limited by guarantee.

1. Limited liability for the debts of the business is the main advantage that an incorporated business has over an unincorporated business.
2. An associated advantage is that if one of the members of an incorporated business dies, his or her shares can be transferred to someone else and the business continues, whereas an unincorporated entity has a finite life.
3. The indefinite life of an incorporated entity is possible because complementary to the concept of limited liability for members is ‘the notion that the company is a separate “legal person” distinct from the members and the directors’