What is Unlimited Liability and Limited Liability?

Unlimited liability

Unlimited liability commonly applies to sole traders and general partnerships. The business is not legally separate from its owner or owners.

This can mean:

• the owner is personally responsible for business debts and obligations;
• personal assets may be exposed if the business cannot pay what it owes; and
• the owner's liability is not capped merely because the activity is described as a business.

Limited liability

A New Zealand limited liability company is a separate legal entity. A shareholder is generally not liable for a company obligation merely because they are a shareholder.

A shareholder may still have liability for amounts unpaid on their shares, obligations in the company's constitution, contracts or personal guarantees they have given, or their own conduct as a director or shareholder.

The right structure depends on the business and the people involved. Ask for professional advice if you are unsure about your circumstances.