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This is generally a condition when the partners of the company decide to pay the debt for the liability which might occur on their business anytime. Legally all the responsibilities are taken by all the members present in the business to pay for the liability. In this, there is an agreement where everyone has admitted the fact in case of any losses in the company or liability including any kind of third party contracts taken by the company, court responsibility and any for the expenses needed for the flourishing of the company which might cause then every member who has a partnership in the business is equally responsible for it and would pay off the financial debt even sacrificing his own personal assets. This blog is to provide information about what is Unlimited Liability in Business.
There might be a situation where an individual has to pay for the liabilities by their personal assets which is not true in the case of the limited liability business the personal assets are protected in that case. This is the only reason behind companies opting for limited liability and not the unlimited liability in which their personal assets are at stake in any losses of the company. All liabilities of the company come across as a big financial burden to the individual especially in cases when the company faces liquidation. In other countries like the UK, there are unlimited company business protecting acts called the Company Act under which agreement is made. This act has been in action since the year 2006.
Advantages of Unlimited Liability Bussiness
There are no such rules and regulations to adhere to for the business partners so they have the freedom and they are allowed to do things as per their convenience and not on the basis of certain rules set up by the third party. There are no such obligations on them as we can see in the case of limited liability business.
We have more chances of saving their taxes as they are under unlimited liability. So they have an opportunity to save their taxes and enjoy the whole profit that the company has earned.
Disadvantages of Unlimited Liability Bussiness
The worst part is that your personal assets are at stake which is a very stressful and worrying part most of the time. As in case of any misfortune, you would be in greater trouble especially when you have no back support from anyone. As you are already at higher risk in such cases taking a loan becomes all the more difficult and sometimes drastic if things go wrong in any case.
Comparison between limited liability business and unlimited liability business
This all depends on the fact that how a business is structured by the people involved in it are they willing to take charge for all the liabilities or debt cause in a company or do they want only a certain percentage to be sacrificed keeping themselves on a safer side.
The two terms are self-explanatory as when we say limited liability business it gives us an idea that there is only a limited loss of money and they have themselves made a full stop or lines protecting all their private assets. We have decided to give off only the amount which they have invested and not everything that they have. Whereas on the other side unlimited liability business as we call it unlimited there is no line drawn so one has to be wholly responsible about any liability caused in a company and have to fulfill the financial requirement even sacrificing their personal assets as per their contracts.
When we talk in legal terms then there is the sole responsibility of the business owners to pay for the liability which the company has come across whereas it’s not the case with the limited liability business.
Also, the owner’s personal assets can be taken up to pay for the requirements of the losses in the company whereas personal assets are completely protected and have nothing to do with company losses in case of limited liability business. Unlimited liability business can be applicable for a general partnership and sole proprietorships. On the other hand, a Limited liability business works in the case of partnership and liability companies.
An example to explain unlimited liability business
Just imagine two individuals coming together to set up a business. Both of them have invested $20000 in it and have also taken a loan of $100000 from the bank. This loan is needed to be repaid by the individuals together but in any case, if they are unable to do so then the bank has full rights to take up their personal asset of similar value they have borrowed. Even if one of the partners does not have enough property then repayment of the complete loan amount is extracted from the other partner’s personal assets.
Whereas if the same situation has a setup of limited liability business then the individual would lose only $20000 which day has invested in the business and all other their personal assets are protected. This example clearly explains to us how all of this works. So one must be very careful when opting for unlimited liability business and should only go for it when they are confident that they would receive enough profit and are at least at risk unless we can have some drastic effects and would be in threat.
Reasons for opting for Unlimited liability business
If you are not willing to share the financial reports and account details publicly then this is the best option for you. You are even allowed to shift your capital as per your requirement and convenience as there are at least restrictions in such a business setup and there are no requirements of any permission as you yourself are responsible for everything. It is also considered to be best in the case where you are confident that there are almost no chances of any losses and liquidation.
We have all observed that unlimited liability business is not as common as we see the limited liability business may be due to the fact that there is not much awareness of it and people setting up the business do not actually know how to use this aspect in their favor and are unaware of the large sum of benefit which could come. In such cases, they should go for professional experience business Financial Aid Executive for help as they would give you an idea which would lead to much more prosperity and profit to the company in future.