Unlimited liability refers to the full legal responsibility that business owners and partners assume for all business debts, without any maximum amount capped on their liability
. This type of liability is not limited to contractual financial obligations and includes other contingent liabilities arising from consumer lawsuits or legal action against the business
. In an unlimited liability company, the owner(s) of a business are entirely responsible for its debts, and their personal assets can be seized to cover the balance owed
. Some key characteristics of unlimited liability companies include:
- No separate legal entity : Unlimited liability companies do not have a separate legal entity, and the owner(s) are personally accountable for the company's liabilities
- No limitation on liability : Unlike limited liability companies (LLCs), unlimited liability companies do not have a maximum amount capped on the liability of the owners or partners
- Personal assets at risk : In an unlimited liability company, the owner(s) personal assets can be seized to cover the company's debts, making them personally liable for the company's financial obligations
- Fewer compliance regulations : Unlimited liability companies are generally subject to fewer compliance regulations, and a sole trader can retain all of their profits after tax has been deducted
Unlimited liability is typically found in general partnerships and sole proprietorships, and it is very different from limited liability companies (LLCs), which are designed to insulate individual partners or stakeholders from personal liability for the company's debts
. Unlimited liability companies are more common in certain jurisdictions, such as the United Kingdom, Ireland, Hong Kong, Pakistan, Nigeria, India, Australia, and New Zealand
