Explanation

A key characteristic of a limited liability company is that it is a separate legal entity from its owners (shareholders). This is called the corporate veil or separate legal personality doctrine.

Because the company is legally separate from its owners, shareholders’ personal assets are protected from the company’s debts. If the company fails, shareholders can only lose what they invested – their personal property cannot be taken to pay company debts.

The death of a shareholder does not dissolve the company because the company has perpetual succession – it continues to exist regardless of changes in ownership. Directors manage the company but do not necessarily own it. Profits are shared according to shareholding, not equally.

This separation is what makes limited liability valuable. It encourages investment because people can invest in companies without risking their entire personal wealth.