© 2015 Shmoop University, Inc. All rights reserved.

CHECK OUT SHMOOP'S FREE STUDY TOOLS: Essay Lab | Math Shack | Videos

Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Unlimited Liability

Definition:

It means you can have your pants sued off, literally. If you house your company inside of a corporate shell, there is usually not unlimited liability, i.e. if your asbestos truck blows up and kills a city, it's only your company that goes BK but you can take your own personal money and run.

Example

It's a tale of two pizza parlors: the Joneses and the Smiths. The Joneses owned their pizza parlor personally as a sole proprietorship style of business ownership. The Smiths set up a limited liability corporation for $299 on LegalZoom.com.

Both operated basically the same. Until The Cheese Day happened. It was bad cheese. They had the same supplier. It turned all of their clients' stomachs to mush. And both operators got sued. And lost. A million dollar judgment.

The Smiths lost the restaurant, but they had taken so much money out of it for years, so they were just fine financially. They'd open a new one down the street. And change cheese suppliers.

The Joneses were not so lucky: the parlor brought $300,000 at auction and the family still owed $700,000. The lawyers stepped in and sold their house, net of mortgage and realtor commissions for $500,000. The cars went for $25,000. Then went the fish tank, the shoes, the jewelry brought over from Europe during the war. All of that was another $20,000.

It still wasn't enough. We shan't continue with what happened to the Joneses, but you don't want to keep up with them. It's called a "limited liability corporation" for really good reason and costs a couple hundred bucks to set up. 

Two words not by Nike: Do it.

Advertisement