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Question
Assertion (A): Sole proprietors have unlimited personal liability for the business debts.
Reasoning (R): Personal assets of the owner may be used to settle business obligations in case of financial difficulties.
Options
A is true, but R is false.
A is false, but R is true.
Both A and R are true, and R explains A.
Both A and R are true, but R does not explain A.
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Solution
Both A and R are true, and R explains A.
Explanation:
Sole proprietors have unlimited personal liability because there is no legal distinction between the business and the owner. This means if the business incurs debts or financial obligations and its assets are insufficient to cover them, the proprietor’s personal assets can be used to settle those debts. Hence, the proprietor is personally responsible for all business liabilities, confirming both the assertion and the reasoning as true, where the reason explains the assertion clearly.
