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The basic Difference Between a Firm’s Debt and Private Debt is that the total amount of debts is belonging to whom, if these are blogging to the partner then it called private Debt or if it is blogging to the firm then it called firm’s debts.
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To know the difference between these two, we must clear the meaning of these terms and explained as follows: –
Meaning of Firm’s Debt:-
A firm’s Debt means the total amount of liabilities owed by the firm to outsiders. In other words, Any type of loan taken by the firm means with the consent of all partners is known as the Firm’s debt. These debts are liabilities of the firm and will be paid by the firm in the future. In the case of default, means the firm not capable to pay this type of liability with the amount which is realized from the sale of its assets then the pending amount will be paid by the partners. The private property of the partner will be sold to pay the firm’s debts.
Meaning of Private Debt: –
Private Debt means the total amount of liabilities owed by the partner to outsiders. In other words, Any type of loan taken by any partner(s) without the consent of other partners and give his own personal security for this. These debts are belonging to the concerned partner and will be paid by him in the future. In the case of default, means if the concerned partner not capable to pay this type of liability with the amount which is realized from the sale of his personal assets then the pending amount will be paid by the Firms. The property of the firm will be sold to pay the private debts.
Chart of Difference Between Firm’s Debts and Private Debts: –
Basis of Difference | Firm’s Debts | Private Debts |
| Meaning | The total amount of liabilities owed by the firm to outsiders. | The total amount of liabilities owed by the partner to outsiders in his capacity. |
| Liability | All partners are liable jointly as per their profit-sharing ratio for the firm’s debt. | Only the concerned partners will be liable for the Private debt. |
| Firm’s Property | The firm’s Debts will be settled by first realizing the property of the firm. | To the extent of Partner’s own share but the value of property left after settling all Firm’s debts. |
| Private Property | To the extent, the value of property left after settling all Private debts. | Private Debts will be settled by first realizing the property of the firm. |
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Conclusion:
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Thus, both terms are different from each other on the basis of responsibility taken for liabilities by the firm or by the partner in his personal capacity.
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