An off balance sheet liability is an obligation of a business for which there is no accounting requirement to report it within the body of the financial statements. These liabilities are usually not firm obligations, but might require settlement by the reporting entity at a future date. Examples of these liabilities are guarantees and lawsuits that have not yet been settled. Though these liabilities may not be reported on the balance sheet, they may still be described in the disclosures that accompany a complete set of financial statements.
Companies sometimes structure liabilities to keep them from being reported on their balance sheets. By doing so, they can report a financial structure that appears to be more financially healthy and liquid than is really the case.