unlimited liability
(noun)
The liability of an owner of a small proprietorship for all costs and debts of the business.
Examples of unlimited liability in the following topics:
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Disadvantages of Sole Proprietorships
- Sole proprietorships face a number of difficulties in the longer terms compared to limited liability companies.
- However, while there are certain advantages (it is easier to set up a sole proprietorship than a limited liability company, for instance), there are a number of big disadvantages, particularly in the long term, that make the sole proprietorship model quite unattractive to business owners.
- Unlimited liability: Your small business, in the form of a sole proprietorship, is personally liable for all debts and actions of the company.
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Types of Ownership
- A business with limited liability, and a wide variety of shareholders.
- A situation in which the liability of the owners of a business is limited to the full, paid-up value of the share capital.
- The owner of the business has total and unlimited personal liability of the debts incurred by the business.
- Each partner has total and unlimited personal liability of the debts incurred by the partnership.
- A situation in which the liability of the owners of a business is limited to the full, paid-up value of the share capital.
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Partnership Agreements
- Setting up a partnership is more complex than setting up a sole proprietorship, but it is still relatively easy and inexpensive compared to limited liability companies.
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Advantages and Disadvantages of Partnerships
- The assets of the business are owned on behalf of the other partners, and they are each personally liable, jointly and severally, for business debts, taxes or tortious liability .
- As in sole proprietorships, partnerships have unlimited liability.
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Types of Partnerships
- In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business.
- The three typical classifications of for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.
- General Partners thus carry more liability, and in cases of financial loss, the GPs will be liable.
- Limited Liability Partnership:A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liability.
- This is an important difference from that of an unlimited partnership.
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Advantages of Corporations
- Shareholders of a modern business corporation have limited liability for the corporation's debts and obligations.
- When a person owns shares in a corporation, the losses cannot exceed the amount invested in the shares, which is called limited liability.
- Unlike a partnership or sole proprietorship, shareholders of a modern business corporation have limited liability for the corporation's debts and obligations.
- Without limited liability, a creditor would probably not allow any share to be sold to a buyer at least as creditworthy as the seller.
- However, some jurisdictions also permit another type of corporation, in which shareholders' liability is unlimited, for example the unlimited liability corporation in two provinces of Canada, and the unlimited company in the United Kingdom.
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Limited Liability Companies (LLCs)
- If you decide to set up an LLC, your liability depends on the amount you have invested.
- This could happen if your liabilities were unlimited.
- Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.
- However, most states do not dictate detailed governance and protective provisions for the members of a limited liability company.
- In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability.
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A Brief Definition of Sole Proprietorships
- A sole proprietorship is owned and run by one individual who receives all profits and has unlimited responsibility for all losses and debts.
- The individual entrepreneur owns the business and is fully responsible for all its debts and legal liabilities.
- The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts.
- This means that the owner has no less liability than if they were acting as an individual instead of as a business.
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US legal issues
- The sole proprietor is generally held accountable for all products and/or services produced by the business, as well as debts and liabilities of the business.
- The owner often decides to reorganize when profits substantially increase the individual's tax liability.
- General partnerships are similar to the combination of a group of sole proprietorships in that the partners share workloads, profits, and liabilities.
- Corporate entities may vary in numbers of owners from a single shareholder to an unlimited number.
- In the United States, the Limited Liability Company (LLC) is the entity of choice for the owner or owners who prefer the limited liability afforded by a corporation and a tax treatment that allows profits to flow from the business to the owner or owners.
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Liabilities
- A liability is defined by the following characteristics:
- Liabilities are reported on a balance sheet and are usually divided into two categories:
- Current liabilities: these liabilities are reasonably expected to be liquidated within a year.
- Long-term liabilities: these liabilities are reasonably expected not to be liquidated within a year.
- Liabilities of the United States as a fraction of GDP (1960-2009)