Which term describes the legal liability where an owner is personally responsible for all debts of the business, potentially requiring personal asset sales?

• A. Limited Liability
• B. Unlimited Liability
• C. Corporate Liability
• D. Personal Liability

Answer: (B)

Unlimited liability means the owner is personally responsible for all the business’s debts. If the business can’t pay what it owes, creditors can pursue the owner’s personal assets—like savings or a home—to cover what’s owed. This is typical in sole proprietorships and general partnerships, where there’s no legal separation between business and person.

In contrast, limited liability protects personal assets—the owners’ losses are capped at what they’ve invested, which is why corporations and many LLCs are popular. Corporate liability refers to the company itself being the liable entity, not the owner's personal wealth. The term personal liability is too broad and doesn’t specify the business structure that puts all debts on the owner's shoulders.