Question

why there is unlimited liability for proprietorship and limited liability for joint stock company

Answer 1

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Indefinite extent of liability to pay a firm's debts or obligations, extending beyond the investments of the firm's owner(s), partners, or shareholder(s) to their personal assets. This extent of liability is assumed in an unlimited liability company such as a sole-proprietorship or a general partnership.

Answer 2

There is unlimited liability for the sole proprietorship and limited liability for the joint stock company. The reasons behind the same are as follows:

• Sole proprietorship: The term 'Sole' means 'Single'. A sole trading concern refers to that form of the organization where there is a single person running the enterprise. There is unlimited liability for the sole proprietorship because owner and the organization are the one and same thing i.e. there is no separate legal entity in this form of the organization. So, owners are personally responsible for the payment of the debts to the outside liabilities.

• Joint stock company: It refers to an artificial person which is being created by law with separate legal entity, perpetual succession and a common seal. There is limited liability for the joint stock company because owner and the organization are the different same thing i.e. there is separate legal entity in this form of the organization. So, owners are not personally responsible for the payment of the debts to the outside liabilities.

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