Unlimited Liability


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.


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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.

  1. Current Assets

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

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

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

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

    A corporate structure whereby the members of the company cannot ...
  6. Current Liabilities

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