Limited liability in Economics means that a shareholder's liability in the event of debt or bankruptcy is limited to the amount they have invested in a company.
When a company is formed, its owners, also known as shareholders, are not personally responsible for the company's debts or obligations. Instead, they have limited liability, which means that their liability is limited to the amount of money they have invested in the company. If the company incurs a debt or is unable to pay its obligations, the shareholders' personal assets are not at risk.
This concept of limited liability is a critical feature of modern economic systems as it encourages investment in businesses. Shareholders are more willing to invest in companies knowing that their personal assets are not at risk. This allows companies to raise funds for expansion or investments, which can create jobs and stimulate economic growth.
In summary, limited liability in Economics means that shareholders are not personally responsible for the company's debts or obligations, and their liability is limited to the amount they have invested in the company. This feature encourages investment in businesses, which can stimulate economic growth.