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

Which of the following is a distinguishing feature of a sole proprietorship as a form of business organization in India?

In a sole proprietorship the owner has unlimited liability, because the business and the proprietor are the same in law. Creditors can recover business debts from the owner's personal assets. Separate legal identity and perpetual succession belong to companies, not proprietorships.

  1. AIt has a legal identity separate from its owner
  2. BThe owner has unlimited liability for the debts of the businessCorrect
  3. CIts existence continues unaffected by the owner's death
  4. DMinimum of two persons is needed to start it

Explanation

A sole proprietorship is not a separate legal entity, so the owner personally bears all business debts without limit. The option on separate legal identity describes a company or LLP. Perpetual succession is also a company feature, and a minimum of two persons applies to partnership, not proprietorship.

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