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Simple English definitions for legal terms
shareholder's liability
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A quick definition of shareholder's liability:
Shareholder's liability refers to the legal responsibility that a shareholder has for the debts and obligations of a company. This means that if the company cannot pay its debts, the shareholder may be required to pay a portion of those debts. Shareholder's liability can be limited or unlimited, depending on the type of company and the laws in the jurisdiction where it operates. It is important for shareholders to understand their potential liability before investing in a company.A more thorough explanation:
Shareholder's liability refers to the legal responsibility of a shareholder for the debts and obligations of a corporation. This means that if the corporation cannot pay its debts, the shareholder may be held personally liable for the remaining amount.
For example, if a shareholder owns 10% of a corporation and the corporation has a debt of $100,000, the shareholder may be liable for $10,000 if the corporation cannot pay the debt.
This type of liability can be limited by law or contract, such as in the case of a limited liability company (LLC) where the shareholders are only liable for the amount of their investment in the company.
It is important for shareholders to understand their potential liability before investing in a corporation or becoming a shareholder.