Module: General Practice
Q122: Which form of business organization is the simplest to establish and requires no specific central registration, but carries the significant disadvantage of "Unlimited Liability" for the owner (meaning personal assets can be sold to pay business debts)?
✅ Correct Answer: C
Correct Option: C. Concept: Sole Proprietorship.
Context: This is the most common form for micro-enterprises.
It is not a separate legal entity from the owner.
Key Features: 1. Unlimited Liability: The owner is personally responsible for all debts.
If the business fails, the owner's personal house, car, or savings can be attached by creditors.
2. Ease of Formation: No formal registration is required under a specific "Proprietorship Act." It is recognized through tax registrations like GST or Udyam.
3. Lack of Continuity: The business ceases to exist upon the death or insolvency of the owner (No perpetual succession).
Context: This is the most common form for micro-enterprises.
It is not a separate legal entity from the owner.
Key Features: 1. Unlimited Liability: The owner is personally responsible for all debts.
If the business fails, the owner's personal house, car, or savings can be attached by creditors.
2. Ease of Formation: No formal registration is required under a specific "Proprietorship Act." It is recognized through tax registrations like GST or Udyam.
3. Lack of Continuity: The business ceases to exist upon the death or insolvency of the owner (No perpetual succession).