Unlimited Liability

Unlimited liability

Full liability for the debt and other obligations of a legal entity. The general partners of a partnership have unlimited liability.

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Unlimited Liability

The responsibility of one or more owners of a business for the total amount of debt and other liabilities that the business accrues, regardless of how much the owner(s) have personally invested. That is, suppose two persons form a general partnership and each invests $10,000. If the business later accrues $100,000 in liabilities, both partners are equally responsible for the $80,000 over and above what they have invested. If the business defaults, the personal assets of the partners may be seized to repay debts. Unlimited liability contrasts with limited liability, which limits the amount one can lose on an investment to the total amount invested. Unlimited liability is most common in general partnerships, sole proprietorships, and for general partners in limited partnerships.

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unlimited liability

The liability of the owner of a business for all the obligations of the business. An owner's personal assets can be seized if the business's assets are insufficient to satisfy claims against it. The placement of personal assets at risk is a great disadvantage of proprietorships and general partnerships. The ability to limit the amount of liability to which an owner is subject is a major reason for the formation of corporations and limited partnerships. Compare limited liability.