Is 'limited liability' a good thing?Explain.

Solution:Whether 'limited liability' is a 'good' or 'bad' characteristic of companies depends on the perspective of the stakeholder. It is an advantage to the investor because his/her obligation is limited to the amount payable on the shares owned. The creditors have no further claim against an owner's wealth or assets in the event of liquidation.

However, from the viewpoint of employees and unsecured creditors, the limited obligation (liability) of owners may be a disadvantage in getting back their entitlements in the event of a company liquidation.

Therefore, in assessing whether it is an advantage or not to the company, you need to assess the respective benefits and limitations from the viewpoint of the major stakeholders (investors, lenders, suppliers, customers, employees, regulators).

Required:

Explain, from your perspective, whether you think 'limited liability' is a good thing.