Which legal concept means owners are personally liable for the business debts?

• A. Joint liability
• B. Unlimited liability
• C. Limited liability
• D. Corporate veil

Answer: (B)

The idea being tested is the level of personal responsibility owners have for business debts. In unincorporated businesses like sole traders and partnerships, there is unlimited liability, meaning there is no legal separation between the business and the owners. If the business can’t pay what it owes, the owners’ personal assets—for example, savings or a home—can be used to cover the debts. This is why personal risk is high in these structures.

This differs from limited liability, where owners’ personal assets are protected beyond what they have invested in the business. The corporate veil describes the separation between a company and its owners in a corporation, a protection that doesn’t apply to sole traders or partnerships. Joint liability involves multiple parties sharing responsibility, but the standard concept in this context is about unlimited liability for the owners of unincorporated businesses.