What does unlimited liability mean for business owners?

Unlimited liability means that business owners are personally responsible for all the debts and obligations of their business. This arrangement implies that if the business incurs debt or faces legal claims, the owner's personal assets—such as their home, savings, and other possessions—can be used to pay off these debts. This is particularly relevant in sole proprietorships and partnerships, where the distinction between personal and business finances is minimal.

In contrast, limited financial risk, protection from personal asset loss, and fixed financial obligations do not accurately represent the implications of unlimited liability. Business owners with unlimited liability face significant financial risk, as they have no legal limit on what they could lose in a worst-case scenario.