Eli5: why the shareholders in a company are not liable to pay debts owed by the company?
In: 181
The short answer: because legally we decided that was the case. If a shareholder is liable for the debts of the company, it’s either a sole proprietorship (one owner) or partnership (multiple owners). Everything else, essentially, gets that special treatment (corporation, LLC, LLP, etc).
Why is it that way? I’m sure another commenter will have a better historical answer. But generally, the legal protections encourage risk, which does on net create more benefit than harm. We could not have built the society we have on sole props and partnerships, just like we can’t feed the society we have on artisanal local farms.
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