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.
