Limits a shareholder's responsibility to contribute to a company’s debts if it fails. Shareholders can only lose the amount they have invested in the company.

Example:

•   Limited Liability Company: If a limited liability company with three owners is sued, the owners only risk losing the capital they invested.

Real-Life Scenario:

A technology startup that is a limited liability company goes bankrupt. Its shareholders lose their investments but are not personally liable for the company’s debts.

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