Bhavya Gupta , asked a question
Subject: Accountancy , asked on 6/4/13

how does business entity concept hold in case of unlimited liability?


Komal Verma , Meritnation Expert added an answer, on 8/4/13

According to the accounting principle of Business Entity, sole proprietor or the owners are considered different from the business and business is considered as a separate entity from its owners. According to this principle, all the business transactions are recorded in the books from the firm’s point of view and not from the owner’s point of view. In this manner, the partners’ personal affairs and their private assets are separate from that of the firm. However, it is only as per the accounting point of view . On the legal grounds , there is no such bifurcation and partners are liable for the firm’s affairs and vice-versa. In this regard, if the firm’s assets are not sufficient to meet its external obligations (say creditors), then the partners are compelled to bring their private assets to pay-off the firm’s debt. Thus, in case of partnership (unlike company), the extent of liability is not only limited to their respective capital amounts but can also be extended to their private assets, so that is why we consider the partners have unlimited liability.

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Nivethasuresh , added an answer, on 8/4/13

it holds only to the extent of business day to day activities in case of loss or extenal liability he partners are unlimitedly liable ...but in india recently limited patnership has also been permitted....limmited patnership means all the partners are liable only to the extent of the capital contributed by them

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