1. Meaning of Limited Liability

• Limited liability means the business owner’s financial responsibility is limited only to the amount they invested in the business
  
• Personal assets such as the owner’s house, car, or savings are protected from being used to settle business debts
  
• This structure is common in private limited companies (Pvt Ltd), limited liability partnerships (LLP), and corporations
  
• Creditors cannot pursue the owner’s personal property unless fraud or personal guarantees are involved
  
• The business is treated as a separate legal entity from its owners

2. Meaning of Unlimited Liability

• Unlimited liability means the business owner is personally responsible for all debts and liabilities of the business
  
• If the business cannot repay its obligations, creditors can seize the owner’s personal assets
  
• This applies to sole proprietorships and general partnerships, where there is no legal separation between the business and the owner(s)
  
• The owner bears full legal and financial responsibility, regardless of the size of the debt
  
• Risk exposure is significantly higher in unlimited liability structures

3. Legal Entity Distinction

• In limited liability, the business is a separate legal person, distinct from its shareholders or partners
  
• In unlimited liability, the business and the individual are considered one and the same in the eyes of the law
  
• Limited liability allows for clear ownership transfer and succession without affecting the personal wealth of owners
  
• Unlimited liability does not protect personal finances in the event of legal action or debt recovery
  

4. Risk and Financial Exposure

• Limited liability minimizes personal risk, making it attractive to investors and entrepreneurs
  
• Unlimited liability exposes all personal assets to business losses, even if unrelated to business operations
  
• Limited liability encourages risk-taking and expansion since personal assets are shielded
  
• Unlimited liability often leads to conservative business practices due to higher financial risk
  

5. Applicability and Choice

• Limited liability is used in formal, registered entities like companies and LLPs, which require legal incorporation
  
• Unlimited liability applies automatically to sole proprietorships and unregistered partnerships
  
• Entrepreneurs seeking protection for personal assets prefer forming limited liability entities
  

Small traders or service providers often start with unlimited liability structures due to ease of setup and lower cost