Unlimited Liability Definition
Define Limited Liability In Simple Terms
Unlimited liability is a system that is typically applied to general partnerships in which the involved business owners equally assume the full responsibility of all business debts.
It is in contrast to limited liability, in which one or more business partners are only liable for debt up to the amount they invested.
What Does Unlimited Liability Mean In Finance?
Unlimited liabilities are most often formed in countries where laws for companies stems from English law.
These include, but are not limited to, the UK, Germany, France, the Czech Republic, Australia, Ireland, New Zealand, India, and Pakistan.
Despite the number of countries in which they may be formed, unlimited liabilities remain relatively rare due to the burden of debt placed on business owners.
Unlimited Liability Example
Consider an example in which five partners come together and invest $20,000 each into a new jointly owned business.
After the course of one year of operation, they accrue $200,000 in debt.
In an unlimited liability system, each owner would have to come up with $40,000 or else risk having their personal assets seized.