4 Limited liability
A limited company is owned by its shareholders, i.e. those who have paid money to the company in order to acquire a legal and financial interest (‘a share’) in it. If you have incorporated your business (i.e. you are a Limited, Ltd or plc) as owner, you are protected from taking on the losses of the business as it is deemed to be a separate legal entity (refer back to Session 2). The incorporation process therefore protects investors and acts as an incentive to invest. The maximum amount a shareholder can lose, in the event of a business collapse, is their original investment amount.
Company shares can be bought and sold by the owners without financial impact on the company, other than the legal obligation to record and maintain a register of the names and other details of its shareholders at any time.
In the next section you will consider what investors are looking for.