Q.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

Business assets are Rs. 50,000 and unpaid debts Rs. 80,000, leaving Rs. 30,000 unpaid from business assets.

• (a) Sole proprietorship: The proprietor has unlimited liability, so the creditors can recover the remaining Rs. 30,000 from the proprietor's personal assets. …

The situation

• Business assets = Rs. 50,000; unpaid debts = Rs. 80,000.
• The business assets can settle only Rs. 50,000, leaving Rs. 30,000 still unpaid. What the creditors can do with this shortfall depends on the form of organisation.

(a) If the organisation is a sole proprietorship

• A sole proprietor has unlimited liability. In law the owner and the business are not separate, so if the business assets are not enough to pay the debts, the owner's personal assets can be used.
• Therefore the creditors can recover the remaining Rs. 30,000 from the proprietor's personal assets (such as personal savings, a personal car or property).

(b) If the organisation is a partnership firm (Anthony and Akbar)

• Partners also have unlimited liability, and importantly this liability is joint and several:
  • Jointly, all the partners are responsible, contributing in proportion to their share.
  • Severally (individually), each partner can be held liable for the full debt on his own.
• Because of this, the creditors can approach either Anthony or Akbar — or both — for the unpaid Rs. 30,000. If the firm's assets and one partner cannot pay, the creditors may realise the whole amount from the other partner's personal assets. …