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The legal principle under which the owners of various types of incorporated organization (corporation, company, partnership, etc.) are released from any liability for debts incurred by that organization above and beyond the capital formally invested in it. This is, prima facie, a way of enabling capitalists to gamble at minimal risk to their own personal assets; in a capitalist society - to which it is fundamental - it is deemed that the stimulus this gives to investment and hence economic growth outweighs the fact that it potentially allows larger investors to wilfully default on debts to employees, contractors and suppliers, with possibly devastating financial consequences for them at no fault of their own, whilst allowing those actually responsible for the bankruptcy to escape at minimal personal cost. Allowing credit to a body with limited liability (e.g. by working or providing goods or services without immediate payment) in any way is therefore inherently riskier than allowing it to an individual, other things being equal.

Obviously, commercial law varies from one jurisdiction to another. The UK, for example, (about as lax as it gets anywhere) allows companies to have a very low level of capitalization (minimum £100) whilst other jurisdictions require much higher sums, require a company to state its paid-up capital on any documentation, or may allow liquidators to call up further sums from owners of stock if the company is demonstrably undercapitalized or trading while insolvent.

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