ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Unlimited liability refers to the full legal responsibility that business owners and partners assume for all business debts. This liability is not capped, and obligations can be paid through the seizure and sale of owners’ personal assets, which is different than the popular limited liability business structure.

Detailed explanation-2: -Unlimited liability is when one or more individuals are liable for their company’s taxation and debts. In this regard, it is very different to a limited liability company (LLC). The latter is designed specifically to insulate individual LLC members (partners or stakeholders) from risk.

Detailed explanation-3: -An example of unlimited liability is where a sole owner is responsible for a business, making themselves and the business entity one and the same thing. If the company encounters cash flow problems and cannot pay its debts, creditors can use the owner’s personal assets to pay the company debts.

Detailed explanation-4: -Example of Unlimited Liability An individual invests $50, 000 in a sole proprietorship. The sole proprietorship then incurs $200, 000 of debts. The individual is personally liable for the entire $200, 000, even though he only invested $50, 000 in the business.

Detailed explanation-5: -Unlimited liability is the legal obligation of company founders and business owners to repay, in full, the debt and other financial obligations of their companies. The legal obligation generally exists in businesses that are sole proprietorships or general partnerships.