eli5 Differences between an Unlimited and Limited Company?
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There is really no such thing as an unlimited company – at least as terminology goes.
The word “limited” is paired with the word “liability”. An LLC (limited liability company) is one where the liabilities of the company belong to the company and are not transferable, in most cases, to the owners.
If someone decided to open a simple business under sole proprietorship, then that business is seen as financially indivisible from the owner. All profits become the owner’s income and all losses are the owner’s loss. If that company, for example, causes a fire and is sued for damages, the owner is liable for any damages. This is “unlimited” liability – the owner’s assets are not distinguished from the assets of the company.
In an LLC, the company is a separate financial entity. It owns assets under the company name and, in the simplest terms, cannot pass their excess liability to the owner. In most circumstances, the owner can only lose as much as they invested (ie the company value might go to zero)
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