True or False  One of the major advantages of a partnership is unlimited liabilityTrue or False  One of the major advantages of a partnership is unlimited liability

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justaguide's profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted on

Unlimited liability is always a disadvantage.

A business should be a separate entity. The actions of a business and their consequences should not affect the owners.

This means that if your business has taken up a loan and defaults you don't end up losing all that you have.

Though this also means that the loan can be procured only when the business can be shown to be capable of repaying the loan irrespective of how much wealth you may have.

litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

It is true that there are many disadvantages to a partnership.  If one partner enters into a legal contract, the other partner is liable for it.  One of the benefits of a partnership agreement is that it ties both partners to each other, so they share liability and benefits.  The moral of the story is be careful who you enter into a partnership with!

accessteacher's profile pic

accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted on

You should be definitely wary of such a concept as unlimited liability. #2 really puts it very well with its focus on what "unlimited" could actually look like. It should ring bells in your head and make you realise that the statement you have given is completely false. As others have pointed out, incorporating is a good thing to think about in terms of protection.

lrwilliams's profile pic

lrwilliams | College Teacher | (Level 1) Educator

Posted on

The above post is absolutely correct, unlimited liability is a big disadvantage to a partnership or sole proprietorship. If you what protection as a business you need to look at setting up a corporation. That way the losses are absorbed by the company and its shareholders.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

This is absolutely false.  In fact, I would say that one of the major disadvantages of a partnership is unlimited liability.

You do not want to have unlimited liability.  Think about what that means.  It means that if your business goes bankrupt you are liable for all the debts that your business incurs.  You are liable for unlimited sums of money.  This means that if you had to borrow a million dollars, you personally owe a million dollars.

The major benefit of incorporating is that you do not have this level of liability.  The debt is contracted by the corporation, not by you as an individual.

So this is not an advantage of a partnership.

epollock's profile pic

epollock | (Level 3) Valedictorian

Posted on

Of course it is false. In any partnership, one or all of the partners can be held liable for any of the other partners' mistakes. The liability is not necessarily limited to what they own and courts have found partners liable for great amounts that could potentially wipe them out.

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