What is the difference between limited and unlimited liability?

Limited liability occurs in limited companies such as a private limited company (ltd) or a public limited company (plc) as the entities have their own legal identity which is separate from the owners. This means that the owners can merely lose what they put into the business and nothing else. -An easy way to remember this is that 'Limited' suggests there's a restriction, therefore meaning the owners are restricted on how much they can lose as it is only what they invest into the business.

Whereas, unlimited liability is applicable to sole traders and partnerships as the owner(s) is/are personally responsible for the losses the business makes. This can be risky as the owners may have to sell personal investments such as their cars and property in order to contribute to the running of the business. -An easy way to remember this is that 'Unlimited' suggests there are infinite ways the owner can pay for the losses out of their own pocket. They are essentially the same legal identity!