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

Rajesh Traders, a Jaipur proprietorship, wants to raise large equity capital from many outside investors and allow free exit of investors through share transfer. Which factor most strongly pushes the choice towards a public company over a partnership?

Ease of raising capital and transferability of ownership is the deciding factor. A public company can raise funds from many investors and its shares are freely transferable, whereas a partnership has limited members and admission of new partners usually needs consent. Public companies also have higher compliance, cost and disclosure.

  1. AEase of raising capital and transferability of ownershipCorrect
  2. BLower cost of incorporation
  3. CFewer annual filings
  4. DGreater secrecy of accounts

Explanation

A public company can invite the public to subscribe to shares and its shares are freely transferable subject to its articles. Partnerships have limited membership and need consent for changing partners. The other options are advantages of simpler forms, not of a public company.

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