Unlimited Liability, UK GAAP and Universal Credit

Unlimited liability

A business with no limit on the liability of the owners.  If you are trading as self-employed (sole trader) or as a partnership your liability, should anything go wrong, is unlimited.  Consequently if you were sued successfully you could lose everything you own.

One of the key advantages in operating as a Limited company is that your liability as a shareholder is limited to the amount of share capital the company has issued and that you have not yet paid for.  So, if your company has 100 £1 shares and you paid-up £20 to open the new bank account and treated that sum as a payment of share capital then your liability, should anything go wrong, is limited to £80 (that is the £100 share capital less the amount you have already paid of £20).

You should always carry business insurance but this is particularly wise if you are trading with unlimited liability.


See G for our definition of GAAP.  UK GAAP stands for United Kingdom Generally Accepted Accounting Practice.  The accounts of a business based in the UK are most likely to be prepared in accordance with the accounting standards used in the UK; the other option is Internation Accounting Standards.  Most countries have their own accounting standards and as a consequence the accounts may look quite different in different countries even if you have completed the same transactions; something to be aware of if you buy a business from outside the UK.

Universal credit

The government’s new benefit system designed to reduce the number of benefits available to claimants.  The new universal credit system run by the Department of Work and Pensions relies on information sent in by employers through the payroll RTI sysyem to calculate the benefits a claimant should receive each month.  This system is due to go live in October 2013; payroll RTI went live in April 2013, see letter R.