What Is Unlimited Liability?
Define Unlimited Liability in Simple Terms
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.
Unlimited Liability Definition FAQs
Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.