Unlimited liability refers to the legal obligations general partners and sole proprietors because they are liable for all business debts if the business can’t pay its liabilities. In other words, general partners and sole proprietors are responsible for paying off all of the company debts personally if the company can’t make its payments.
In this sense, the business owners are unlimited liable for all the business actions. Lawsuits create a big problem for partners with unlimited liability. For instance, if a customer slips and falls injuring himself in your store, the customer could sue the business. If the business does not have enough money to pay the judgment, the customer can then sue the general partners. If the general partners don’t have enough money to pay the suit, the court can order the general partners to sell personal assets like houses and cars to settle the suit.