Corporations are limited liability companies - what does that mean?
Corporations are particularly attractive for founders - and for a good reason: they benefit from limited liability. Our team will show you exactly what this means in the following article.
What are corporations?
The term ‘corporation’ covers a variety of legal forms. You should already be familiar with most of them: The Gesellschaft mit beschränkter Haftung (GmbH), the Unternehmergesellschaft (UG haftungsbeschränkt) and the Aktiengesellschaft (AG). They all benefit from limited liability.
The limitation of liability for corporations: an overview
The limitation of liability for corporations is of course not unlimited. In order to better understand the topic of liability, you will find an overview of all important questions relating to the topic of limitation of liability in corporations here:
- What does limitation of liability for corporations mean?
- To whom does the limitation of liability apply?
- Which legal forms benefit from the limitation of liability?
- What are the exceptions to the limitation of liability?
What does the limitation of liability mean for corporations?
These shareholders own shares in the company. If there is a case of liability for the company, the shareholders are not liable with their private assets. The shareholders' assets remain strictly separate from those of the company. This has the advantage that risk-intensive transactions within the company do not jeopardise the shareholders' private assets. In the event of liability, however, corporations are fully liable with the company's assets.
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To whom does the limitation of liability apply?
Corporations have limited liability for their shareholders. As an independent legal entity, the corporation must be considered separately from the shareholders. The shareholders are not personally liable for the company's liabilities. In the worst-case scenario, the shareholders can only lose their contribution or the value of their investment, but not their private property.
Which legal forms benefit from limited liability?
The following legal forms have limited liability:
- Limited liability company (GmbH)
- Entrepreneurial company (UG haftungsbeschränkt)
- Public limited company (AG)
- GmbH & Co. KG
- Registered co-operatives (eG)
There are also other legal forms that benefit from limited liability, such as partner companies or limited partners within an AG. Full liability applies to partnerships.
What are the exceptions to the limitation of liability?
The limited liability of shareholders is of course not unlimited; there are exceptions. If this liability applies, it is referred to as ‘pass-through liability’. Such personal liability can arise, for example, in the event of asset mingling, institutional abuse or undercapitalisation of the company.
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