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.

RELATED TERMS
  1. Articles Of Organization

    A formal legal document used to establish a limited liability ...
  2. Unlimited Liability Corporation ...

    A corporate structure that permits a company to be incorporated ...
  3. Current Assets

    1. A balance sheet account that represents the value of all assets ...
  4. Current Liabilities

    A company's debts or obligations that are due within one year. ...
  5. Limited Liability Company - LLC

    A corporate structure whereby the members of the company cannot ...
  6. General Partner

    Owners of a partnership who have unlimited liability. A general ...
Related Articles
  1. Discover Master Limited Partnerships
    Retirement

    Discover Master Limited Partnerships

  2. Protect Your Personal Assets
    Personal Finance

    Protect Your Personal Assets

  3. Corporate Partnerships That Went Sour
    Personal Finance

    Corporate Partnerships That Went Sour

  4. Benefits Abound For Active Traders Who ...
    Trading Strategies

    Benefits Abound For Active Traders Who ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center