Contingent liability

A potential obligation that depends on the outcome of a future event, such as a lawsuit or regulatory decision.

Example

A claim that would cost 270,000 if a court rules against the company.

Important

It may not appear on the balance sheet but can still cost real money.

Related terms

• Worker misclassification — Treating a worker as an independent contractor when, under the relevant law, their working relationship makes them an employee or worker.
• Disclosure schedule — The document in which a seller lists the exceptions to what they are formally promising - the litigation, the defaults, the contracts that are not on standard terms.

Lessons that explain it

• The liabilities that are not on the balance sheet — Legal diligence looks for obligations the accounts may not show: workers who may legally be employees, pending or threatened litigation, and regulatory licences or rules the business depends on. (10 min)

All 578 terms in the Investing glossary