Unlimited Liability

Loading the player...

DEFINITION of 'Unlimited Liability'

A type of business where owners share joint and several responsibility for the entire amount of debt and other liabilities amassed by the business. Unlimited liability is not capped at a maximum amount and exists regardless of the amount of investment each owner has personally made. If the business is unable to meet any financial obligations or settle any outstanding liabilities, the owner's personal assets can be seized to satisfy the debts. This is in contrast to a limited liability structure where owners' losses cannot exceed the total amount invested in the business. Unlimited liability is found in general partnerships and sole proprietorships.

BREAKING DOWN 'Unlimited Liability'

Unlimited liability means that owners can be held personally accountable for a business's debt. For example, three partners each invest $20,000 in a business. The business accrues $150,000 in liabilities. If the business is unable to repay the debts or defaults on its debt, each of the three partners is equally liable for the debt. In other words, each would have to come up with $50,000 above their initial investment to satisfy the debt. Placing personal assets at risk can be disadvantageous and many businesses choose to form as limited partnerships instead.

RELATED TERMS
  1. Current Liabilities

    A company's debts or obligations that are due within one year. ...
  2. Current Assets

    A balance sheet account that represents the value of all assets ...
  3. Articles Of Organization

    A formal legal document used to establish a limited liability ...
  4. General Partner

    Owners of a partnership who have unlimited liability. A general ...
  5. Limited Liability

    A type of liability that does not exceed the amount invested ...
  6. Limited Liability Company - LLC

    A corporate structure whereby the members of the company cannot ...
Related Articles
  1. Entrepreneurship

    What is Unlimited Liability?

    Unlimited liability means that the owners of a business are liable for the entire amount of debt and obligations of that business.
  2. Retirement

    Discover Master Limited Partnerships

    These unique investments provide significant tax advantages.
  3. Personal Finance

    Protect Your Personal Assets

    A family limited partnership (FLP) can go a long way toward securing your family's property.
  4. Personal Finance

    Corporate Partnerships That Went Sour

    Business partnerships can be incredibly successful or totally dysfunctional. Here are five that failed to stand the test of time.
  5. Trading Strategies

    Benefits Abound For Active Traders Who Incorporate

    Trading through a separate business structure allows active traders access to all of the tax mitigation and asset protection strategies available.
  6. Options & Futures

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  7. Entrepreneurship

    10 Characteristics Of Successful Entrepreneurs

    Do you have the qualities of a successful entrepreneur? Those who do tend to share these 10 traits.
  8. Investing

    5 Up and Coming Social Media Startups

    Although the days of Facebook's dominance aren't close to being over, here are some new creative platforms gaining traction on the worldwide web.
  9. Entrepreneurship

    Are You Really an Entrepeneur? A Reality Check

    If you are going to be an entrepreneur, and you’re doing it on a shoestring, you’ll need more than a good idea. Here are some skills to master.
  10. Entrepreneurship

    Digital Nomads in the Modern Economy

    Digital nomads compose a growing portion of the modern economy.
RELATED FAQS
  1. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  2. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  5. How are joint ventures regulated in the United States?

    Joint ventures are a very specific type of business arrangement. They can be organized in several different legal structures, ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center