Unlimited liability

Definition

Unlimited liability means that business owners are personally responsible for all the debts and obligations of their business. In a partnership, each partner can be held liable for the entire amount of business debt, not just their share.

5 Must Know Facts For Your Next Test

1. In a general partnership, all partners have unlimited liability.
2. Unlimited liability can lead to personal asset risk if the business cannot cover its debts.
3. This type of liability is a significant disadvantage of organizing as a partnership.
4. Limited partnerships can offer some partners limited liability while others retain unlimited liability.
5. Creditors can pursue personal assets of any or all partners to satisfy business debts.

Review Questions

Related terms

General Partnership: A type of partnership where all partners have unlimited liability for the debts of the business.

Limited Partnership: A partnership structure where some partners have limited liability up to the amount they invested.

Joint and Several Liability: A legal principle where each partner can be held responsible for the full amount of a debt or obligation.