Liability comparisons Merideth Harper has invested $25,000 in Southwest Developm

Question

Liability comparisonsMerideth Harper has invested $25,000 in Southwest Development Company. The firm has recently declared bankruptcy and has $60,000 in unpaid debts. Explain the nature of payments, if any, by Merideth in each of the following situations.

a.Southwest Development Company is a sole proprietorship owned by Ms. Harper.

b.Southwest Development Company is a 50-50 partnership of Merideth Harper and Christopher Black.

c.Southwest Development Company is a corporation.

If Southwest Development Company is a 50-50 partnership of Merideth Harper and Christopher Black,:(Select the best answer below.)

A.

Ms. Harper has limited liability, which guarantees that she cannot lose more than the $25,000 she invested.

B.

Ms. Harper has unlimited liability, which means creditors can claim against her personal assets.

C.

Ms. Harper has limited liability, which is $30,000, or half of the $60,000 in unpaid debts.

D.

Ms. Harper has unlimited liability, which means creditors can only claim against the $25,000 she invested.

Explanation / Answer

A.In a sole proreitorship, the owner is responsible for all of the debts in the company as well as they enjoy all the profits of the company.

so, the owner has unlimited liability, the creditors can claim all the assets for the recovery of dues.

so, option A is incorrect.

B. statement B, in a general partnership, the partners are responsible for all the debts of the company, so they have unlimited liability. this statement is correct.

C. statement c, is incorrect. Limited liability is also limited till the extent of the capital contributed by the partner, and not 50% of the share of profits will make it limted liabilty. This statement is incoorect also because, in genral partnership, the partners are liable to the debts in n unlimited manner, that is the creditors will be liable to recover their dues by claiming the assets of the partners, in case the partners are unable to pay the entire dues of $60,000.

D.It is write that the partners have unlimited liability but that doesn't make them liable for only $25,000.

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