Limited Liability

Limited Liability

Limited Liability means:
the restriction of a person's potential losses to the amount invested; the absence of personal liability. Liability of investor which is limited to the extent of his investment. Generally, a taxpayer cannot deduct tax losses in excess of the amount he or she stands to lose. One exception may be for third-party nonrecourse debt on real estate. However, real estate is subject to at-risk rules. Limited liability is provided to stockholders in a corporation and to limited partners in a limited partnership. Those parties cannot lose more than they contribute to the corporation or partnership unless they agree to become personally liable. For example, if a person buys $1,000 worth of stock in a corporation, he or she cannot lose more than that amount. However, many lenders require personal guarantees from major stockholders before lending to corporations. Former Tax Regulation (check if this Reg. is current here) §301.7701-2(d).


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