Skip to content

CS Executive · Setting Up of Business, Industrial and Labour Laws · Selection of Business Organization

Anita wants to run a business with her brother. They want a separate legal entity, limited liability, only two members and a restriction on inviting the public to subscribe to securities. Which structure, as a company, best meets these needs, and why?

A private company best meets these needs. It has separate legal personality and limited liability for members, restricts share transfer, and prohibits invitation to the public to subscribe to its securities. An unlimited company would not cap liability, and a public company is not designed for such restriction.

  1. APublic company, because it may have two members
  2. BPrivate company, because it restricts share transfer and prohibits invitation to the publicCorrect
  3. CUnlimited company, because it gives limited liability
  4. DProducer company, because it suits all trades

Explanation

A private company restricts the right to transfer shares, limits its members, and prohibits any invitation to the public to subscribe to its securities, while giving limited liability and separate personality. An unlimited company does not limit members' liability, so that option is wrong. A public company can be offered to the public and does not fit the restriction they want.

Did you get it right without looking?

One question tells you little. A timed set on Selection of Business Organization shows your real accuracy, how long you take and where you lose marks.

Practise Selection of Business OrganizationFree diagnostic mock

More Selection of Business Organization questions