Unlimited Liability

AAA

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Articles Of Organization

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

    Owners of a partnership who have unlimited liability. A general ...
  3. Current Liabilities

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

    1. A balance sheet account that represents the value of all assets ...
  5. Limited Liability Company - LLC

    A corporate structure whereby the members of the company cannot ...
  6. Limited Liability

    A type of liability that does not exceed the amount invested ...
RELATED FAQS
  1. 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 >>
  2. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
  3. What are the benefits for a company investing in a greenfield investment?

    Advantages of greenfield investments include increased control, the ability to form marketing partnerships and the avoidance ... Read Full Answer >>
  4. What are the benefits of financial sampling?

    Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
  5. What are the benefits of prorating expenses?

    When a person prorates expenses between personal and business expenses, he is able to capture the maximum amount of tax benefits ... Read Full Answer >>
  6. What are the responsibilities of the principal in a company?

    Principals have different roles depending on the nature of an individual business, but the universal responsibility of a ... Read Full Answer >>
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

    How a Higher Minimum Wage Would Impact the Economy

    Doubling pay for hourly workers could have several knock-on effects to the economy. Here's a brief look at a big issue.
  8. Entrepreneurship

    How Peter Thiel Became a Superstar

    A review of the career of legendary Silicon Valley entrepreneur and investor Peter Thiel.
  9. Professionals

    Advisors: Get Those Referrals! (Here's How)

    If you're not talking to your clients about referring you to friends, you should be.
  10. Entrepreneurship

    Netflix's New Strategy: Penetrate Your Hotel Room

    Will Netflix’s new venture—to offer its media content in hotels—pay dividends? Investopedia explores the business potential and related developments.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!