MEANING
Debts are the loan for the firm or any individual. It is the claim the third party carries against any firm or individual. Private Debts are the debts which a partner owes in his personal capacity. The respective partner is liable to discharge these debts personally or from his own sources.
FIRM’ S DEBTS
Debts which the firm owes to outsiders are known as Firm’s debts. In other words, these are the claims which the firm has to pay to the outsiders or third party. The payment of these debts is made out of the firm’s property first.
PROVISIONS APPLICABLE IN RESPECT OF FIRM’S DEBT AND PRIVATE OR PERSONAL DEBT
- Firm’s property is applied first towards payment of firm’s debts and then the surplus, if any, is applied towards payment of partner’s debts to the extent of concerned partner is entitled to share in the surplus.
- Private property of each partner is applied first towards the payment of his personal debts and surplus, if any, is applied towards payment of firm’s debts.
DIFFERENCE BETWEEN FIRM’S DEBTS AND PRIVATE DEBTS
| BASIS OF DIFFERENCE | FIRM’S DEBTS | PRIVATE DEBTS |
| MEANING | Firm’s Debts means the debt owed by the firm to outsiders of third parties of the firm. | It means debt owed by a partner in his personal capacity to any other person. |
| LIABILITY | All the partners are liable jointly and severally for the firm’s debts. | Concerned partners are liable personally for his personal debt. |
| APPLICATION OF FIRM’S PROPERTY | Firm’s property is applied first for settling firm’s debt. | Share of the concerned partner in excess of the firm’s property over firm’s debts can be applied to repay the personal debt. |
| APPLICATION OF PRIVATE PROPERTY | Excess of partner’s private property over his personal debt can be applied to repay the firm’s debts. | Private property is applied first for these debts then towards firm’s liability. |