What it is:
How it works/Example:
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.