Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting for Shares

Question:

In an unlimited company, how can creditors claim their dues if the company's property is insufficient?

Options:

By selling the company's assets

From the private property of its members

From the company's employees

From the government

Correct Answer:

From the private property of its members

Explanation:

In an unlimited company, the liability of its members is not limited to their investment in the company. If the company's property is insufficient to cover its debts and obligations, creditors can claim their dues from the private property of the company's members. This means that the personal assets of the members are at risk and can be used to settle the company's debts if the company cannot fulfill its financial obligations. Unlimited companies are relatively rare and are not commonly formed due to the significant personal liability they impose on their members. Because the members' personal assets are not protected from the company's liabilities, there is a higher level of risk involved for members of unlimited companies compared to members of companies with limited liability.