“Personal liability” in the context of business law means that the owner or operator of a business is liable for the debts of the business. This means that the owners’ personal assets may be seized to satisfy business debts. This is in contrast with limited liability, through which an owner’s assets are shielded from the business’s liabilities. Business owners should always seek to have limited liability when possible.

Example of Personal Liability

Acme is an unincorporated business, meaning it is not an incorporated entity. It has one owner, Bob. Because Acme is an unincorporated entity, Bob has personal liability for Acme’s debts.

Acme has assets worth $500,000. Aside from his ownership of Acme, Bob has other assets worth $1,000,000. Combined with his ownership interest in Acme, Bob has total assets worth $1,500,000.

An Acme customer slips and falls at Acme headquarters. Acme loses a lawsuit and owes the plaintiff $1,250,000. After taking $500,000 from Acme, the plaintiff can take $750,000 from Bob. Having lost all of Acme’s assets as well as his own, Bob now has assets worth only $250,000 – a personal loss of $1,250,000.

Example of Limited Liability

Acme LLC is an incorporated entity. In particular, it is a limited liability company. It has one owner, Bob. Because Acme is an LLC, Bob has limited liability for Acme’s debts.

Acme has assets worth $500,000. Aside from his ownership of Acme, Bob has other assets worth $1,000,000. Combined with his ownership interest in Acme, Bob has total assets worth $1,500,000.

An Acme customer slips and falls at Acme headquarters. Acme loses a lawsuit and owes the plaintiff $1,250,000. The plaintiff takes all of Acme’s $500,000 in assets, but cannot take Bob’s personal assets because he is shielded by the company’s limited liability. Having lost all of Acme’s assets as well as his own, Bob still has his own $1,000,000. He only lost the $500,000 invested in Acme, but keeps all of his personal assets.