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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Which feature is true of a sole proprietorship but NOT of a partnership firm under the Indian Partnership Act, 1932?

A sole proprietorship has exactly one owner who bears unlimited liability for the business debts. A partnership has two or more partners who share profits by agreement. Unlimited liability and optional registration apply to both forms, so single ownership is what distinguishes the proprietorship.

  1. AThe business has a single owner who bears unlimited liability for its debtsCorrect
  2. BOwners share profits according to an agreement
  3. COwners are personally liable for the firm's debts
  4. DRegistration of the firm is optional

Explanation

A sole proprietorship has only one owner, so that owner alone bears unlimited liability. Profit sharing by agreement needs at least two persons, so it applies only to a partnership. Unlimited personal liability and optional registration are common to both forms, so they do not distinguish the two.

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