Why there is unlimited liability for the sole proprietorship and limited liability for the joint stock company?
Justify your answer with reasons.
Answers
Answer:
Explanation:
Sole Proprietorship is a business where the single person owns, runs and manages all the business activities. The business entity is not different from the owner of the business. Sole Proprietor has limited access to resources to run the business whereas it has unlimited liability at the time of winding up.
Joint Stock Company is a form of business that is owned, managed and runs through the channel of special formed members parties. All the decisions related to the firm are taken under the set of committee rules and standards. Here, the business entity is different from the person indulge in its management and ownership.
Therefore, the reason why Sole Proprietor has unlimited liability due to the no difference between proprietor and business; On the other hand, the Joint Stock Company has limited liability because of the difference in business and proprietors identity.
Sole proprietos have unlimited liability because the law considers the proprietor and the business as the same business entity.
The proprietor and the business are the same. Therefore, the business as a separate entity doesn't have unlimited liability, but someone has to have unlimited liability for the safety of the creditors.
On the other hand, a company is an artificial person created by law and is a separate legal entity from its pomoters, shareholders and directors. All the owners (shareholders) of a company have limited liability whereas the company, as a separate legal entity has unlimited liability.