liability

noun li·a·bil·i·ty \ ˌlī-ə-ˈbi-lə-tē \
Updated on: 13 Oct 2017

Definition of liability

plural liabilities
1 a :the quality or state of being liable
  • was cleared of liability for the accident
2 :something for which one is liable; especially :pecuniary obligation :debt usually used in plural
  • business assets and liabilities
3 :one that acts as a disadvantage :drawback
  • This scandal makes the candidate a liability for the party.

Examples of liability in a Sentence

  1. The company is trying to limit its liability in this case.

  2. a retired football player whose chief asset—his prodigious girth—has now become a liability

Recent Examples of liability from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'liability.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of liability

1705


Financial Definition of LIABILITY

joint liability

What It Is

Joint liability refers to the individual and collective obligation of more than one party on a loan.

How It Works

Joint liability is best illustrated by two married people who apply jointly for a credit card to maximize the amount of money they can borrow. If the credit card company approves their application, both spouses are responsible for any balance charged to the card. Should one spouse default on payments, the other is still liable for the full amount.

In a business partnership, joint liability includes a shared responsibility among all partners for damages, injuries or any outstanding debts. In other words, if a court finds a partnership at fault in a lawsuit, all compensation payments are the responsibility of all partners.

Why It Matters

Individuals seeking joint liability for credit must be aware of whom they choose to participate in a joint liability, because debts incurred by any one party become the obligation of all parties. Likewise, a partner in a partnership firm must be aware of any illegal or suspicious activities hold the other partners accountable, because all partners suffer the consequences if the firm is prosecuted and punished.


joint and several liability

What It Is

Joint and several liability means an obligation to make a payment either together or individually.

How It Works

For example, let's say John and Jane Doe buy a car. They take out a loan from Company XYZ for the purchase. The loan agreement states that John and Jane have joint and several liability for the car payments, meaning that even though Company XYZ made the loan based on their combined income and even though John is the only one driving the car, both he and Jane are responsible for making the payments. If John loses his job, for example, Jane must still make the loan payments. If Jane dies and her income ceases, John must still make the loan payments. If John runs off with another woman, isn't even around to drive the car and then declares bankruptcy, Jane is still responsible for the payments.

Many partnership agreements have joint and several liability clauses, meaning that all the partners are responsible for the debts of the partnership. If one partner becomes insolvent, for example, the other partners become responsible for that person's share of the partnership's debts.

In another example, if Sara Smith goes to a local safety fair and falls and breaks her leg while she's there, she may use the concept of joint and several liability to hold multiple parties at fault for the damage. She might sue the fair organizer for not clearing the path appropriately, as well as the owner of the building in which the fair is held, the promotions company that advertised the safety fair and the contractor that originally installed the slippery linoleum in the entryway. If a judge finds these parties liable and awards Sara $1 million for her medical bills and pain and suffering, she may be free to collect the whole amount from one or all of the defendants if the court allows or joint and several liability.

Why It Matters

Joint and several liability protects lenders by ensuring that they are able to collect from anyone involved in borrowing money from them. As the Sara Smith example shows, joint and several liability also protects people who win judgments by giving them more ways to collect the money due to them. Sometimes the court will assign a percentage of negligence for each defendant. In our example in which John runs off with another woman, the court might say that John owes 75% of the car payments and Jane owes the rest.

Often, however, the court will refuse to do this and simply tells the lender to pursue the defendant with the most money. If that happens to be Jane, in our example, she will have to pay for the car and then pursue John for reimbursement in a separate lawsuit. Many states limit or prohibit joint and several liability.


liability

What It Is

In finance and investing, a liability is a claim on a company's assets.

How It Works

For example, let's assume that XYZ Company sold $1,000,000 of gift certificates during the holidays. The gift certificates entitle the holders to $1,000,000 of merchandise, and XYZ Company must therefore record a liability for this merchandise. As the gift certificates are redeemed, the company reduces the liability.

Some liabilities are contingent upon the occurrence of other events. For example, XYZ Company may agree to repay the debts of a key supplier if the supplier is unable to do so. This represents a contingent liability for XYZ Company, because it is only liable for the debt if the supplier defaults first. Possible requirements to remedy environmental damage or concerns over the outcomes of some lawsuits are also common types of contingent liabilities.

Accounting liabilities due within one year are generally classified as current liabilities on a company's balance sheet. Liabilities due in more than one year are considered long-term liabilities. It is important to note that although debt commonly comes to mind when one considers liabilities, not all liabilities are debt. Companies may incur several other types of liabilities, including (but not limited to) upcoming payroll, bonuses, legal settlements, payments to vendors, certain derivatives, contracts, certain types of leases, and required stock redemptions. Common balance-sheet categories for liabilities include accounts payable, accrued expenses, and debt.

In business law, liability refers to the responsibility for a company's debt or other obligations. Some forms of business organization, such as a sole proprietorship, have unlimited liability, meaning that the owner is personally responsible for the debts and obligations of the business, and lenders or courts may look to the owner's personal assets for payment of these obligations. Limited liability organizations, such as corporations, allow lenders and courts to only seize the assets of the business rather than the assets of the owners.

Why It Matters

Information about a company's liabilities is a key component of accurate financial reporting and a crucial part of thorough financial analysis. Although the Financial Accounting Standards Board, the Securities and Exchange Commission, and other regulatory bodies define how and when a company's liabilities are reported, and although liabilities make up a significant portion of the balance sheet, not all liabilities are required to appear on the balance sheet. Therefore, analysts must also carefully study the notes to a company's financial statements.

Excessive liabilities can ruin a company, but they are not always detrimental. Liabilities often represent the company's ability to defer cash outlays, allowing it to use that cash for other, possibly more profitable purposes until the obligation is due. The use of debt financing can magnify profits that would have otherwise gone unrealized.

For more detail about how the Financial Accounting Standards Board defines and governs accounting for liabilities, go to {ia_ext|http://www.fasb.org/pdf/con6.pdf|http://www.fasb.org/pdf/con6.pdf}.


LIABILITY Defined for English Language Learners

liability

noun

Definition of liability for English Language Learners

  • : the state of being legally responsible for something : the state of being liable for something

  • : something (such as the payment of money) for which a person or business is legally responsible

  • : someone or something that causes problems


Law Dictionary

liability

noun li·a·bil·i·ty \ ˌlī-ə-ˈbi-lə-tē \

legal Definition of liability

plural liabilities
1 :the quality or state of being liable
2 :something for which one is liable: as
a :a financial obligation :debt
  • tax liability
  • the bonds are liabilities
— compare asset
contingent liability
:an amount that may or may not be owed depending on the outcome of a contingency (as a cosigner's default on a loan)
fixed liability
:a liability (as a bond or mortgage) that does not mature for at least one year from the date incurred or from a given date
b :accountability and responsibility to another enforceable by civil remedies or criminal sanctions
  • liability for injuries caused by their product
absolute liability
:strict liability in this entry
alternative liability
:joint liability imposed on multiple tortfeasors when there are simultaneous tortious acts (as defective manufacture of parts of a wheel by different manufacturers) and uncertainty as to which act was the proximate cause of an injury — compare concert of action 1
civil liability
:liability imposed under civil laws and civil process as distinguished from criminal laws; also :the state of being subject to civil sanctions (as restitution or damages)
  • the acquittal does not relieve the corporation of civil liability for its fraud
— see also tort
Note: Civil liability is created by a legal theory or principle that places a duty or obligation (as to use due care) on the defendant.
corporate liability
:liability of a corporation that is enforced by sanctions imposed against the corporation itself — see also pierce
criminal liability
:liability imposed under criminal laws and by means of criminal prosecution; also :the state of being subject to criminal sanctions
enterprise liability
:liability imposed on a business enterprise especially for on-the-job injuries to employees; specifically :liability imposed on defendants who are all members of an industry that has produced a defective product when the specific manufacturer cannot be identified
joint and several liability
:joint liability imposed on joint tortfeasors that allows enforcement of the entire judgment against any one of the tortfeasors
Note: In some jurisdictions, joint and several liability remains despite adoption of comparative fault, and in others it has been eliminated by comparative fault.
joint liability
:liability that is shared (as by co-owners); specifically :liability for a tort that is imposed on joint tortfeasors when they have acted in concert, owe the same duty to the plaintiff, have a legal relationship, or otherwise together have caused an injury to the plaintiff and that allows contribution or indemnity between the joint tortfeasors
liability in solido
:solidary liability in this entry
liability without fault
:strict liability in this entry
personal liability
:liability imposed against an individual especially for injuries that occur on the individual's property or as a result of the individual's activities
premises liability
:liability arising from injuries or losses occurring on one's premises
primary liability
:liability imposed directly on a person because of his or her own negligence, default, or legal undertaking
products liability
:liability imposed on a manufacturer or seller for a defective and unreasonably dangerous product; specifically :strict liability for a defective product that does not require the plaintiff to have privity of contract with the seller or manufacturer called also product liability
Note: A plaintiff usually must show that a defective product was the proximate cause of injuries, was defective at the time of purchase, and was used for its intended purpose in order to establish a products liability claim.
secondary liability
1 :vicarious liability in this entry
2 :liability (as of a guarantor) that arises from a legal obligation owed to an injured party to pay damages for another's failure to perform or negligent act
several liability
:liability assumed or imposed on an individual separate from others
solidary liability
in the civil law of Louisiana :liability that is shared by obligors and that makes any one obligor liable for the entire obligation to the obligee but also apportions the liability among the obligors so that contribution is allowed; specifically :such liability for a tort that is imposed on joint tortfeasors — see also solidary obligation at obligation
strict liability
:liability that is imposed without a finding of fault (as negligence or intent)
vicarious liability
:liability that is imposed for another's acts because of imputed or constructive fault (as negligence) — see also respondeat superior


Seen and Heard

What made you want to look up liability? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

spoken rather than written

Get Word of the Day daily email!

Test Your Vocabulary

The Exceptions Quiz III

  • one-green-toy-robot-amidst-many-red-toy-robots
  • Which of these words does not mean "nonsense"?
Name That Thing

Test your visual vocabulary with our 10-question challenge!

TAKE THE QUIZ
Dictionary Devil

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!