what does the term unlimited liability mean when it is applied to partnership members

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Expert Solution

Unlimited liability partnership means the liability of the partners is unlimited in the sense that if the business is unable to pay its debts then the partners have to bare the loss according to their partnership agreement

For example -

If there are 2 partners A and B sharing profits and losses equally . At the time of dissolution the assets stood at $100,000 and liable including partners capital at $120,000.

Assume the partners capital is A - 2,000 and B - 5,000

Now the liability is $ 20,000 more than assets .

Even if the partners sacrifice their capital of $2,000 and $5000 each , the liability is still (20,000-7,000)

=$ 13,000

The business is unable to pay this $13,000 , so the partner have to bare this liability equally that is -

$6,500 each by A and B

If it was a limited liability partnership then the partner had to bare the loss only to the extend of capital investment ,that is - $ 2000 by A and $ 5,000 by B .

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ekkarill92 answered 1 year ago

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