What is the difference between limited and unlimited liability?

Limited liability and unlimited liability refer to the degree to which owners of a business are responsible for the company’s debts and obligations.

Limited liability means that the owners of the business (such as shareholders in a corporation) are only liable for the amount of money they have invested in the business. Their personal assets are not at risk if the company incurs debts or legal liabilities. This is a common feature of corporations, limited liability partnerships (LLPs), and limited liability companies (LLCs).

Unlimited liability, on the other hand, means that the owners of the business (such as sole proprietors or general partners in a partnership) are personally responsible for all of the company’s debts and obligations. If the business is sued or cannot pay its debts, the owners may have to use their personal assets to satisfy the liabilities. This is a common feature of sole proprietorships and general partnerships.

In summary, limited liability provides a layer of protection for owners’ personal assets, while unlimited liability exposes owners to personal financial risk.