justify the following statements the liability of a sole trader is unlimited
Answers
The liability of a sole trader is unlimited. This is because of sole traders do not have any separate legal existence from the business.
Explanation:
- According to law, the owner and business are on the same page.
- Following this, all the debts of the firm are on the owner personally and he may also have to pay for the losses from own pocket as well
- That's why the liability of the sole trader is unlimited
Learn more about sole proprietorship
What is sole proprietorship
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Explanation:
1) An individual invests him own capital, uses his own skill and undertakes the business activities. He manages affairs of the business, enjoys profits and bears losses on his own. This form of commercial organization is also known as proprietorship, the sole trader, individual Enterpreneaurship.
2) Sole proprietorship is the oldest and simplest form of the organization. The word Sole means Single and proprietorship means owner. A sole trader is an independent owner of a business.
3) Sole trader has unlimited liability. Unlimited liability implies that, there is no distinction between personal property and business property of sole trader.
4) If business assets are not sufficient to pay off liabilities of business then personal properties of sole trader may be attached to business properties.
5) The liability of sole trader is unlimited. There is no distinction between personal assets and business assets. He cannot be separated from his business. His business liabilities need to be paid by selling his private property, if required.
Therefore, the liability of Sole Trader is unlimited.
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