What legal principle governs the protection of a business from owing more than its assets?

The legal principle that protects a business from owing more than its assets is known as limited liability. This principle is foundational in corporate and business law, particularly for corporations and limited liability companies (LLCs). It ensures that the personal assets of the business owners or shareholders are not at risk for the debts and liabilities of the business. In the event that the business incurs debt or faces legal action, the owners are only liable for the amount they invested in the business, thereby protecting their personal wealth.

Limited liability encourages investment in businesses, as investors are more likely to contribute capital if they know their personal assets are safe. This structure promotes economic growth and entrepreneurship, as it reduces the financial risk associated with starting and operating a business.

Unlimited liability, on the other hand, exposes business owners to the risk of losing personal assets to satisfy business debts, which is more common in sole proprietorships and partnerships. Sovereign immunity pertains to the legal doctrine that prevents the government from being sued without its consent, which does not apply to business liability. Conversion refers to the unauthorized taking or use of someone else's property, which is also unrelated to the concepts of liability in business contexts. Therefore, the principle of limited liability is key in establishing a protective buffer for business owners against