The business assets of an organisation amount to Rs. 50,000 but the debts that remain unpaid are Rs. 80,000. What course of action can the creditors take if
The organisation is a sole proprietorship firm
(a) In case of a sole proprietorship firm, the creditors can recover the debt from the personal assets of the sole proprietor. Since the liability of the owner is unlimited, the creditors can claim the remaining Rs. 30,000 (Rs. 80,000 - Rs. 50,000) from the proprietor's personal belongings after exhausting the business assets of Rs. 50,000.
(b) In case of a partnership firm, the creditors can approach both Anthony and Akbar for repayment of debt. The partners have unlimited liability and personal assets may be used for repaying debts when business assets are insufficient.
Furthermore, the partners are jointly and individually liable for payment of debts. Jointly, all partners are responsible for the debts and contribute in proportion to their share. Individually, each partner can be held responsible for repaying the entire debt of the business. However, a partner who pays more than his share can later recover the amount from other partners as per the partnership agreement.
The organisation is a partnership firm with Anthony and Akbar as partners. Which of the two partners can the creditors approach for repayment of debt? Explain giving reasons
Both partners can be approached. The creditors have the right to claim the debt from either Anthony or Akbar individually, or from both jointly, due to the principle of joint and several liability in partnership.
Explanation
The textbook clearly establishes that in sole proprietorship and partnership firms, the liability is unlimited. For partnerships, the context explicitly states that 'partners are jointly and individually liable for payment of debts' and that 'each partner can be held responsible repaying the debts of the business.' This means creditors have the legal right to approach any partner for the full amount of debt, and the partner who pays can later recover the proportionate amount from other partners.