Limited liability is the concept that the full extent of an investor's risk is the investment made in a business. The limited liability concept was used in the development of corporations and limited partnerships, where investors can only lose the amount of their investments in these entities. Investors are not responsible for any losses suffered by these entities that exceed the amount of their investments. The limited liability concept is especially useful for the protection of personal assets in industries that can suffer significant losses.
The most commonly-used entities that do not employ the limited liability concept are sole proprietorships and general partnerships.