Vicarious liability is the duty of a principal, e.g., an employer, to pay for losses occasioned by the acts of an agent, e.g., an employee. Strict liability, under which those engaging in certain undertakings (e.g., such "ultrahazardous" practices as the industrial use of high explosives) are held responsible for injury without inquiry into fault, has been increasingly imposed by courts and by statute in the 19th and 20th cent. One response has been the growth of the liability insurance industry, offering such coverage as physicians' malpractice insurance. An area that has been the focus of much litigation, legislation, and debate in recent decades is product liability, under which heavy strict liability costs have been imposed on makers of such varied items as foods, drugs, cosmetics, and automobiles.
Condition under which the loss that an owner (shareholder) of a business may incur is limited to the capital invested in the business and does not extend to personal assets. The forerunners of limited-liability companies were limited partnerships, which were common in Europe and the U.S. in the 18th and early 19th centuries. In limited partnerships, one partner is entirely liable for losses and the other partners are liable only for the amounts they invested in the business. After the Joint-Stock Companies Act (1844) in England made incorporation easier, joint-stock companies with limited liability for all members became widespread. The development of the limited-liability company was crucial to the rise of large-scale industry in the late 19th and 20th centuries, since it enabled businesses to mobilize capital from a variety of investors who were unwilling to risk their entire personal fortunes in their investments. Seealso risk.
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Insurance against claims of loss or damage for which a policyholder might have to compensate another party. The policy covers losses resulting from acts or omissions that are legally deemed to be negligent and that result in damage to the person, property, or legitimate interests of others. It was principally the introduction of the automobile that spurred the rapid growth of this form of insurance, which now extends to a great many activities in addition to driving, including malpractice insurance for doctors and other professionals, marine liability for boat owners and operators, and product liability for manufacturers of consumer goods. Seealso casualty insurance, consumer protection.
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Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that can be inferred from a set of facts in a particular situation as opposed to a contractually based obligation.
The Australian Accounting Research Foundation defines liabilities as future sacrifice of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions and other past events.
Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board (IASB). The following is a quotation from IFRS Framework:
Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB.
Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.
Liabilities of uncertain value or timing are called provisions - see Provision (Accounting).
When a bank receives a deposit it credits a liability account called "Deposits" and credits the depositor's bank account for the same amount (the bank's "Deposits" account is the sum of all of the amounts credited to all of its customer's individual bank accounts). A deposit received by a bank is credited because the bank's liability to its customer, the depositor, increases. When a bank informs its depositor that it has debited the depositor's bank account, it means that the depositor's bank account has been decreased by the amount debited.