Commercial Applications
A client sues a partnership firm for not delivering goods on time. The court orders all partners to pay compensation using their personal assets. What feature of partnership leads to this situation?
- Unlimited liability
- Mutual agency
- Sharing of profits and losses
- Restriction on transfer of interest
Answer
Unlimited liability
Reason — Each partner is liable to an unlimited extent for the firm's obligations towards outsiders. If the firm's assets are inadequate to meet its debts in full, even the personal property of the partners can be attached to satisfy claims. This is exactly what is happening in this case, where the court has ordered partners to pay compensation using their personal assets.
Related Questions
Two friends, Ajay and Sameer, jointly own a property but do not run a business with it. Can this arrangement be considered a partnership?
- Yes, because they jointly own a property
- No, because they are not running a business
- Yes, if they share the rental income equally
- No, because partnership must involve more than two people
Assertion (A): In a Limited Liability Partnership (LLP), the liability of the partners is limited to their agreed contribution.
Reasoning (R): An LLP is a hybrid form of business organisation combining features of a partnership and a joint-stock company.
- Both A and R are true, and R is the correct explanation of A.
- Both A and R are true, but R is not the correct explanation of A.
- A is true, but R is false.
- A is false, but R is true.
Define partnership.
State three features of partnership.