Under unlimited liability, can personal assets be sold to pay debts?

Under unlimited liability, can personal assets be sold to pay debts?

• A. Yes, always
• B. No, never
• C. Personal assets can be sold to pay back business debts
• D. The government covers debts

Answer: (C)

Unlimited liability means owners are personally responsible for the debts of the business. If the business can’t pay what it owes, creditors can seek the owners’ personal assets to settle those debts. So personal assets can be sold to pay back business debts. This is different from limited liability, where owners’ personal wealth is protected beyond what they’ve invested in the business. In practice, sole traders and partnerships carry this risk because their personal wealth could be at stake if the business runs up losses.

Unlimited liability means owners are personally responsible for the debts of the business. If the business can’t pay what it owes, creditors can seek the owners’ personal assets to settle those debts. So personal assets can be sold to pay back business debts. This is different from limited liability, where owners’ personal wealth is protected beyond what they’ve invested in the business. In practice, sole traders and partnerships carry this risk because their personal wealth could be at stake if the business runs up losses.