The UK Company Law - Essay Example

The managers and workers of the company are not responsible for the debts of the company. Limited liability protects them against vicarious liability for the wrongs of the company (Shasthri, Bhatt, & Saran, 2010, p. 22). The other advantage of limited liability is that it encourages new investment strategies.

Principally, it views capital and skill as two separate elements. As a result, individuals who have money, but lack business management skills, can make investments in the corporate sector. A company, upon incorporation, becomes a separate legal entity. Its legal status is independent of that of its shareholders. This perception also justifies the concept of limited liability. This is because the activities of the company are distinct from those of its shareholders. A change in the ownership of shareholding does not affect the corporate entity (Siegel, 2006, p. 539). Limited liability is an attractive feature of the corporate world, and investors concentrate on this feature, whilst making investments.

Limited liability reduces the risk to assets or investments. In other words, it limits potential losses to investors. It promotes risk–sharing with outside parties who have transactions with the company. This situation has been deemed to be unfair, in the context of tort claimants (Witting, July 2009, p.113). However; the courts have tended to uphold the doctrine of limited liability, to the detriment of such tort claimants. This principle provides several benefits, such as a reduction in monitoring costs and an increase in markets for stock.

Moreover, it promotes new stock portfolios, which promotes the emergence of new corporations, and encourages companies to invest in new projects. The drawback of limited liability is that it imposes costs on the creditors of the company. The disadvantaged parties under limited liability are the parties who are not efficient risk bearers. This disadvantage is caused involuntarily. The courts lift the corporate veil if there is fraud in the activities of the company. Before lifting the veil, the courts examine whether the plaintiff was a voluntary or an involuntary creditor (Shasthri, Bhatt, & Saran, 2010, p. 22). If there are involuntary creditors, the courts generally ignore the doctrine of limited liability.