What is meant by unlimited liability in a business context?

• A. Owners have limited risk for business debts
• B. Owners are personally accountable for all debts of the business
• C. Only shareholders are liable for debts
• D. Liability is restricted to the capital invested

Answer: (B)

Unlimited liability refers to a situation in which the owners of a business are personally responsible for all debts incurred by the business. This means that if the business were to experience financial difficulties or go bankrupt, creditors can pursue the owners' personal assets to settle the company's debts. This concept is often associated with sole proprietorships and partnerships, where there is no legal distinction between the owner's personal finances and those of the business.

Choosing the option that states owners are personally accountable for all debts of the business accurately reflects the nature of unlimited liability. It highlights the inherent risk that comes with this type of business structure, as the owners must be prepared to shoulder financial responsibilities beyond what they have invested in the business itself.

In contrast, the other options misinterpret the concept of liability. For example, the notion that owners have limited risk for business debts inaccurately describes the nature of unlimited liability by suggesting that there is a cap on financial risk. Additionally, the idea that only shareholders are liable for debts does not apply universally, particularly when considering sole proprietorships or partnerships where there are no shareholders. Lastly, the mention of liability being restricted to the capital invested contradicts the essence of unlimited liability, which implies that personal assets can also be pursued to cover business debts