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

Kavita, a sole proprietor in Jaipur, runs a handicraft business and has taken a loan for it. The business is unable to repay the loan fully. Which statement correctly describes her position?

Kavita's personal assets can be reached by creditors because a sole proprietorship has no separate legal identity from its owner and the owner bears unlimited liability for business debts, unlike in a company or LLP.

  1. AHer liability is limited to the capital she invested in the business
  2. BThe business is a separate legal entity, so her personal assets are safe
  3. CHer personal assets can be reached by creditors since the business and she are legally oneCorrect
  4. DOnly the business assets can be attached because no registration was done

Explanation

A sole proprietorship has no separate legal identity from the owner, so liability is unlimited. Creditors can proceed against personal assets if business assets fall short. The limited-liability options describe companies or LLPs, not proprietorships.

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