Limited liability provides a layer of protection for business owners. For example, Karim invested £15,000 when setting up a plumbing business and he owns 100% of the shares. If the business went £50,000 into debt, limited liability would mean that Karim would only lose his original £15,000 investment. His other personal finances and possessions would be protected.
A limited liability business has its own legal identity, meaning that its owners are not personally responsible for its debts.
Unlimited liability can have big implications for business owners. Having unlimited liability gives business owners a greater amount of risk. For example, Sarah set up a corner shop as a sole trader and initially invested £10,000. If the business went into £60,000 of debt, Sarah would be personally responsible for the whole of this debt. This would mean that she would have to use her personal savings and possessions to pay off all of the £60,000.
An unlimited liability business does not have its own legal identity and the owners are personally responsible for all debts of the business.