Unlimited liability refers to the legal obligations general partners and sole proprietors because they are liable for all business debts if the business can’t pay its liabilities. In other words sole Traders are responsible for paying off all of the businesses debts personally if the business can’t make its payments.

In this sense, the owners of the business are unlimitedly liable for all the business actions. Lawsuits create a big problem for partners with unlimited liability. For instance, if a customer slips and falls injuring himself in your store, the customer could sue the business. If the business does not have enough money to pay the judgment, the customer can then sue the owners. If the owner don’t have enough money to pay the suit, the court can order the owner to sell personal assets like houses and cars to settle the suit.

As you can see, unlimited liability is not favorable.