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Unlimited liability


Liability for the debts an individual or business has incurred, without limit. This is contrasted with limited liability, where shareholders in a limited liability company are not liable for its debts provided they hold fully paid-up shares. Unlimited liability for the debts of a business makes it difficult to raise capital for large and complex ventures, as without the protection of limited liability small investors are reluctant to put money into a business they do not fully understand and cannot control. The recent experience of some members of Lloyd’s illustrates the dangers of unlimited liability. Larger investors sometimes choose to operate with unlimited liability, as their reputation enables businesses run on this basis to get credit relatively easily and to borrow relatively cheaply.

Reference: Oxford Press Dictonary of Economics, 5th edt.