Premium Essay

Unlimited Liability Firm

In: Business and Management

Submitted By iamvaijan
Words 683
Pages 3
Unlimited liability Firm :
Definition
Private firm (such as a sole proprietorship or general partnership) whose owner(s), partners, or stockholders accept personal and unlimited liability for its debts and obligations in return for avoiding double taxation of a limited company. Unlimited liability firms are exempt from filing their annual accounts with a public authority (such as Registrar Of Companies) unless they are subsidiaries of limited liability holding companies. Also called unlimited company.

Definition of 'Unlimited Liability'

A type of business where owners share joint and several responsibility for the entire amount of debt and other liabilities amassed by the business. Unlimited liability is not capped at a maximum amount and exists regardless of the amount of investment each owner has personally made. If the business is unable to meet any financial obligations or settle any outstanding liabilities, the owner's personal assets can be seized to satisfy the debts. This is in contrast to a limited liability structure where owners' losses cannot exceed the total amount invested in the business. Unlimited liability is found in general partnerships and sole proprietorships.

Investopedia explains 'Unlimited Liability'

Unlimited liability means that owners can be held personally accountable for a business's debt. For example, three partners each invest $20,000 in a business. The business accrues $150,000 in liabilities. If the business is unable to repay the debts or defaults on its debt, each of the three partners is equally liable for the debt. In other words, each would have to come up with $50,000 above their initial investment to satisfy the debt. Placing personal assets at risk can be disadvantageous and many businesses choose to form as limited partnerships instead.

UNLIMITED LIABILITY:
A condition in which owners of a business are...

Similar Documents

Premium Essay

Classification of Companies and Separate Legal Entity

...Types / form of business organization Sole Proprietor -operated by individual -unlimited liability -not complex organizational structure -all decision regards to business is done by the individual - Capital for venture is from the individual -all the profits made belong to him exclusively but he also bear all the risk -no separation between the business and his personal assets Advantages: -only minimal legal requirements for him to comply - Easy to start -minimum capital is required -all assets & profits belong to the owner -owner can exercise his entrepreneurial skill to the full -owner makes all decision & operates the business the way he wishes - No need to disclose accounts to the public Disadvantages: -unlimited liabilities -inadequate funds -limited skill or expertise -personally accountable for all business decisions -responsible for all the work. No one to share the workload. -no income if owner is incapacitated. Eg. Sickness -no continuity. ( perpetual succession) Business ceases once owner dies Partnership – Partnership Act 1961 * Unlimited liability * Terminate if there is death, bankruptcy * The partners can be sue or be sued * Member –min 20 , max 20 * X own any property under its firm name. * X take any loans from creditors on its firm name * X loan any money on its firm name * X sue or be sued on the firm name Advantages 1. Easy to form 2. Fewer formalities than incorporate a......

Words: 1333 - Pages: 6

Premium Essay

Business Law and Company Liability

...Liability of the members in relation to the obligations of the business organisation Sole proprietorship The sole proprietor and the owner is regarded as the same entity. Therefore, the owner has unlimited liability in relation to the obligations of the business organisation. This would be a disadvantage as the owner’s personal assets are at risk as the owner is personally responsible for all debts and obligations of the business as regarded by law. Partnership Same as above. Limited liability partnership (LLP) The LLP is a separate legal entity whereby LLP’s liabilities are its own. Therefore the partners will not be personally liable for the LLP’s debts and obligations. Limited Partnership LP is not a separate legal entity. However, only the general partner who takes part in the management of the firm is personally liable for debts and obligations of the LP. The limited partner liability is capped at the amount of the agreed investment in LP and his other assets would not be at risks. It should be noted that the limited partner should not take part in the management of the firm otherwise he would be considered a general partner and his liability will be unlimited. Company The company is considered as a separate legal entity and the company’s assets are its own. The company’s liabilities are also its own and the shareholders and directors of the company are not personally liable. This is also exemplified in the case of Saloman v A Salomon & Co......

Words: 971 - Pages: 4

Premium Essay

Lebanese Business Associations

...Incorporeal elements * Location * Customers * Trade name * Lease rights * Trademarks * Copyrights * Licenses Contracts over BE: * Sale * Chattel mortgage * Unlimited management * Contributing in a corporation or partnership Termination of BE: * In case of the merchant bankruptcy * In case the merchant decides to close the BE * In case the merchant loses his cliental (customers) * Business Concern is not a legal entity. * Business Concern has legal existence. * A business concern cannot exist without business venture; however, a business venture (commercial activities) can exist without a business concern (such as peddler) * The commercial obligations are registration and maintaining commercial books. * Each owner of a business concern is considered by the law a merchant. Unlimited Partnership Definition: The Commercial Code’s definition (article 46) of an unlimited partnership is an association of people. This partnership is formed by two or more people (general/active partners) who are jointly and severally responsible of the company’s debt and which operate under a collective name. UP has a legal personality that represents all the partners. Liability of partners in such UP is unlimited severally and jointly regardless the contribution of the partners themselves. Partners are personally liable regarding the UP debts. UP does not...

Words: 1386 - Pages: 6

Premium Essay

Student

...corporate finance so that you can understand how things fit together. Motto for class: You can forget the details, but don’t miss the storyline. To show you that corporate finance is a blast! Motto for class: Are we having fun yet? The Balance Sheet Model of the firm Managerial finance focuses on three decisions: In what long-term assets should the firm invest? This question concerns the lefthand side of the BS 4 How can the firm raise cash for its required expenditures? This question concerns the righthand side of the BS How should shortterm operating cash flows be managed? This question concerns the upper portion of the BS The capital budgeting decision The capital structure decision Net working capital decisions Cash flows are king! The most important job of a financial manager is to: Create value from capital budgeting, financing, and net working capital activities. 5 How do managers do this? Buy assets that generate more cash than they cost Sell bonds, stocks, and other financial instruments that raise more cash than they cost. Thus, the firm must create more cash than it uses - the cash flows paid to bondholders and stockholders should be greater than the cash flows they put into the firm. Finance is about one thing: And that one thing is valuation: How much should you pay for the asset (what is that stock, bond, or business really worth? ) How should you...

Words: 1358 - Pages: 6

Premium Essay

Legal Forms of Business Organization

...Limited Liability Corporation, Limited Liability Partnership, Corporation Paper Angelika Evanoff FIN/419 July 20, 2015 Mrs. Michele Huss Limited Liability Corporation, Limited Liability Partnership, Corporation Paper The purpose of this paper is to discuss three legal forms of business organization; a limited liability corporation or company, a limited liability partnership, and a class C corporation. The paper begins with a brief description of each structure, followed by a comparison and contrast of each form’s advantages and disadvantages. The author finishes by citing examples in which she would use each type of business structure if establishing a new business. It is important to choose the appropriate legal form of organization because the decision affects owner’s risks, raising money, and how profits are taxed (Gitman & Zutter, 2014). Readers can expect to have a better idea of the various options available to entrepreneurs after reading this essay. Legal Forms of Business Organization The three most popular structures of company organization are the sole proprietorship, the partnership, and the corporation. A sole proprietorship has one owner while a partnership has two or more owners, and a corporation is an entity created by law (Gitman & Zutter, 2014). The forms offer limited liability or unlimited liability to its owners. Various structures that provide limited liability include a limited liability corporation, limited liability partnership, and......

Words: 1062 - Pages: 5

Premium Essay

Corporate Finance Solutiions

...Solutions to Chapter 1 The Firm and the Financial Manager 1. real executive airplanes brand names financial stock investment capital budgeting financing 2. A firm might cut its labor force dramatically which could reduce immediate expenses and increase profits in the short term. Over the long term, however, the firm might not be able to serve its customers properly or it might alienate its remaining workers; if so, future profits will decrease, and the stock price will decrease in anticipation of these problems. Similarly, a firm can boost profits over the short term by using less costly materials even if this reduces the quality of the product. Once customers catch on, sales will decrease and profits will fall in the future. The stock price will fall. The moral of these examples is that, because stock prices reflect present and future profitability, the firm should not necessarily sacrifice future prospects for short-term gains. 3. The key advantage of separating ownership and management in a large corporation is that it gives the corporation permanence. The corporation continues to exist if managers are replaced or if stockholders sell their ownership interests to other investors. The corporation’s permanence is an essential characteristic in allowing corporations to obtain the large amounts of financing required by many business entities. 4. A sole proprietorship is easy to set up with a minimum of legal work. The business......

Words: 796 - Pages: 4

Premium Essay

Finance

...FINANCE AGENDA • Definition • Types of corporate firm • The importance of cash flows • Agency problem WHAT IS CORPORATE FINANCE? WHAT IS CORPORATE FINANCE? How the company raise funds? (financing decision  capital structure) Sources of fund: 1. Debt 2. Equity What long-lived assets to invest? Assets: 1. Current assets 2. Non-current assets/fixed assets How the company manage shortterm operating cash flows? BALANCE SHEET MODEL OF THE FIRM Total Value of Assets: Total Firm Value to Investors: Current Liabilities Net Working Capital Current Assets Long-Term Debt Fixed Assets 1 Tangible Shareholders’ Equity 2 Intangible What is the most important job of a financial manager? To create value for the firm How? In summary, corporate finance addresses the following three questions: 1. What long-term investments should the firm choose (capital budgeting)? 2. How should the firm raise funds for the selected investments (financing)? 3. How should short-term assets be managed and financed (net working capital activities)? LEGAL FORM OF ORGANIZING FORM SOLE PROPRIETORSHIP Owned by one person PARTNERSHIP Owned by two or more individuals Types of partnership: a. General partnership b. Limited partnership Advantages 1. Easy to form 2. No corporate income taxes 3. Management control resides with the owner of general partners Disadvantages 1. 2. 3. 4. Unlimited liability Life of the business is limited Difficulty of......

Words: 517 - Pages: 3

Premium Essay

Chapter 6

...corporations, and limited liability companies. Sole proprietorship-a form of business ownership with a single owner who usually actively manages the company. General partnership-a partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm. Limited liablility companies- form of partnership in which all partners have the right to participate in management and have limited liability for company debt Corporations- a form of business ownership in which the business is considered a legal entity that is separate and distinct from owners. 2. Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form of ownership such as a corporation or LLC? It’s the easiest and least expensive form of business to set up. And allows the single owner to recap all of the profits. Sole proprietorship have major limitations can only have one owner. Risk associated with unlimited liability and its difficult to manage a business on your own. 3. How do limited partnerships and limited liability partnerships differ from general partnerships and from each other? A limited partnership is a type of partnership that consist of atleast one general partner and at least one limited partner. A limited liability partnership does......

Words: 644 - Pages: 3

Premium Essay

Business Structure Advice

...Business Structure Advice Rebecca Hardy FIN/571 - Corporate Finance 22 September, 2014 Professor Gurpreet Atwal Dear John Owner, Thank you for allowing my consulting firm to give you the information that you will need to make a sound decision as to the type of business structure that will meet your needs. The three main types of business structure are sole proprietorship, partnership, and corporation. In the next few sections I will explain each type and describe the advantages, disadvantages and tax implications that you would encounter if you selected that type. Let’s begin with the sole proprietorship. Sole Proprietorship The sole proprietorship is the easiest and most cost effective type of business structure to set up, so if funding is a concerned this business structure may be the best route to take. The only cost associated with starting a sole proprietorship the cost of obtaining a business license and the normal startup expenses. With the sole proprietorship the owner is only taxed once on the business’s income. However, one of the major disadvantages of the sole proprietorship is the unlimited personal liability that the sole proprietor faces. In the event that the business cannot generate enough cash flow to pay all of its financial obligations the owner becomes personally liable for all debts. This means that creditors can file lawsuits against the owner’s personal property as well as the business in order to seek repayment for services,......

Words: 922 - Pages: 4

Premium Essay

Business

...importance in the world's economy. In 2008, the 441 largest private companies in the United States accounted for US$1.8 trillion in revenues and employed 6.2 million people, according to Forbes. In 2005, using a substantially smaller pool size (22.7%) for comparison, the 339 companies on Forbes' survey of closely held U.S. businesses sold a trillion dollars' worth of goods and services (44%) and employed 4 million people. In 2004, the Forbes' count of privately held U.S. businesses with at least $1 billion in revenue was 305.[1] Cargill, Koch Industries, Bechtel, Publix, Pilot Corp., Deloitte Touche Tohmatsu (one of the members of the Big Four accounting firms), Hearst Corporation, Cox Enterprises, S. C. Johnson, and Mars are among the largest privately held companies in the United States. KPMG, the UK accounting firms Ernst & Young and PricewaterhouseCoopers, IKEA, Trafigura, J C Bamford Excavators (JCB), Lidl, Aldi, LEGO, Bosch, Rolex, Ferrero, Bertelsmann and Victorinox are some examples of Europe's largest privately held companies. State ownership vs. private ownership[edit] In the broadest sense, the term private corporation refers to any business not owned by the state. This usage is often found in former communist countries to differentiate from former state-owned enterprises,[citation needed] but...

Words: 1343 - Pages: 6

Premium Essay

Business Law

...Stewart Law Firm, P.A. 1234 Tampa Rd. Tampa, Florida 33607 813-123-4567 www.stewartlaw.com June 4, 2014 Natural Ice Cream Attn: Betty and Betsy 123 N. 2nd Ave. S. Tampa, Florida 33611 Re: Different forms of business entities Dear Betty and Betsy, The purpose of this correspondence is to address your inquiries regarding your new business endeavor pertaining to natural ice cream and potential investors. Our understanding of your business endeavor is as follows: 1) opening of an ice cream parlor 2) potential investor, that is a Chinese citizen 3) potential business, may have an interest in investing. In your scenario presented, I would like to discuss the different forms of business entities that can be established along with factors to consider when choosing a business form. Factors to Consider when Choosing a Business Form * Ownership and Control * Liability * Taxation * Expenses involved in formation * Capitalization * Liquidity Different forms of business entities (Pros and Cons) Solo Partnership *Business owed by a single person *No Formation requirements at all… just open doors and start operating *Can contain employees; but on person has complete ownership and all decision making power *Taxation: All profits are considered personal income; there is no separate entity of the business itself *Liability: Fully liable for all corporate debts Advantages: (1) Total Control (2) Simplicity of Formation Disadvantages: (1) Difficulty in raising capital......

Words: 885 - Pages: 4

Premium Essay

Reacting to a Process Gone Wrong

...Entity, Control, Taxation and Liability As per the scenario, Lou and Jose plan to open a sports bar and restaurant, the best business entity choice for this restaurant and sports bar is the partnership firm because Lou, Jose and Miriam are the three persons who want to start the business in return for a percentage of ownership. Lou and Jose will take care of business operations and Miriam will invest money. Miriam will allow to Lou and Jose to keep control on business activities by sharing profit with them, so it would be considered as the partnership firm (The General Partnership, 2010). In a partnership firm the all the business decisions are taken by the conformance of all the partners. In this scenario, Lou and Jose are the main controllers and their partnership is general partnership but Miriam would not have any control because he is giving money in to earn profits only (Liability for partnership debts, 2010). According to the taxation policy of USA, in a partnership firm the tax will not incur on profit before distributing to the partners. In partnership business entity, the tax would be paid by the individual partners after distributing the profit among them (The General Partnership, 2010). According to the common law, in this partnership business entity, the liability of Lou and Jose is unlimited for the business organization because they will manage all the activities and plans of the restaurant but the liability of Miriam is limited......

Words: 1647 - Pages: 7

Premium Essay

Mini Case

...than advance to a partnership before forming a corporation below are some advantage and disadvantages of each form: 1. Proprietorship: This type of organization is individually owned and has the following advantage; it is easy and inexpensive to form, its income is not subjected to corporate taxes and it is subjected to few government regulation. Some disadvantages for proprietorship are the owner has unlimited personal liability for the business debts, it is usually difficult for proprietors to obtain capital for growth and the life of the business is limited to the life of its founder. 2. Partnership: This type of organization is formed when two or more individuals or entities come together to conduct a non-corporate business for profit. Partnerships have the same advantages as proprietorships i.e. they are easy and inexpensive to form, income is not subjected to corporate taxes and they are subjected to few government regulation. Disadvantages are difficult to obtain substantial amounts of capital for growth, unlimited liability, limited life of the organization, and difficulty of transferring ownership, Corporations: This type of organization is a legal entity created under state law and is separate and distinct from its owners and managers. Advantages of a...

Words: 674 - Pages: 3

Premium Essay

Business Structure

...Business Structures LaGloria Williams FIN/571 April 9, 2015 Travis Hayes Every business in the world has a structure to it. It could be a small local business like a boutique or a large corporate business like a popular bank. Having a business structure to your business is what helps determine what type of ownership takes place. There are three main business structures, they are known as; sole proprietorship, partnership, and corporations. These three business structures are important to know when opening a business. This paper will describe the business structures and discussed the advantages and disadvantages that take place in each one. The first business structure is sole proprietorship. Sole proprietorship is a business that is owned by only one person. An example of a sole proprietorship business is a local floral shop; this is because it is a small business. When having sole proprietorship over a business it comes with a lot of positive and negative responsibility. It is very easy to start a small business for someone wanting sole proprietorship. The owner has complete authority of all of the decisions made for the business. The income taxes are lower than other business and easier to handle. The sole proprietor of the business also gets to keep all profits made from the business, meaning they do not have money to pay out to anyone unless there are employees of the business. The negative part of being a sole proprietor of a business is that the......

Words: 805 - Pages: 4

Premium Essay

Buss 1 Key Terms

...BUSS1 Key Terms Adding value A process through which a business increases the worth of the resources included in production so that customers perceive the product to be worth more than the cost of the inputs Advisor An external contact of a business that provides support and advice, sometimes for free Bank loan A fixed amount loan from a bank which is generally used to finance long-term assets Bank overdraft Borrowings from a bank on a current account which are payable on demand Breakeven point The point at which the total sales of a business equal total costs -i.e. the business is making neither a profit nor a loss Budget A detailed plan of income and expenses expected over a certain period of time Business plan A detailed description of a new or existing business, including the company’s strategy, aims and objectives, marketing & financial plan Business objective A stated goal or target of a business (note: a business can have more than one objective!) Cash flow The movements of cash into (“inflows”) and out of (“outflows”) a business Cash flow forecast A projection, usually by week or month, of the likely cash inflows and outflows in a business Contribution The difference between total sales and total variable costs Contribution per unit A key number for breakeven analysis: the difference between selling price per unit and variable cost per unit. Costs Amounts incurred by a business as a result of its trading operations Demand The amount......

Words: 1178 - Pages: 5