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Define unlimited liability

August 30, 2019


Define unlimited liability
In business, liabilities are debts that companies take on as they conduct business. It is common for businesses in the normal course of growth and activity to accumulate debts as they borrow money for new operations or expansions, purchase supplies and raw materials using credit, or take out mortgages on property or equipment. There are two general categories of liabilities: current liabilities, which are paid off within one year, and long-term liabilities, which are paid off in time frames greater than one year.
The term unlimited liability describes a situation in which those obligated for paying back a debt have unlimited responsibility to pay it back. This means that a business owner is held personally responsible for the debts of his business if the business runs out of money to pay its debts. If the business accumulates debts and then closes down or is successfully sued for a large amount of money, the owner of the business will usually have to pay out of his personal finances.

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