Question

Why there is unlimited liability for the sole proprietorship and limited liability for the joint stock company?

Justify your answer with reasons.

Note: Give brief answer in two bullets points only.

Answer 1

Answer:

Unlimited liability in case of Sole proprietorship :->Unlimited liability refers to the legal obligations general partners and sole proprietors because they are liable for all business debts if the business can’t pay its liabilities. In other words, general partners and sole proprietors are responsible for paying off all of the company debts personally if the company can’t make its payments.

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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