Question

Ch.11

2) What is meant by the limited liability of a stockholder? Does this characteristic enhance or reduce a corporation's ability to raise capital?

Answer 1

Limited liability is a kind of legal protection whereby owners and shareholders have no personal responsibility for their company's debts and financial losses.A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the amount already invested in the company and for any unpaid amount on the shares in the company, if any.

This doesn't enhance or reduce a corporation's ability to raise capital but unlike other corporations, which can issue stock in order to increase funds for their companies, LLCs have to work a little harder to find investors and sources of capital due to the greater legal obligations and state filings involved to add a new member to an LLC. If you have a fast growth internet company that needs venture capital to scale, this limitation is one of the major disadvantages of a limited liability company.