Module: General Practice
Q128: Consider the following scenario regarding funding for an MSME:
Assertion (A): Venture Capitalists (VCs) and external equity investors generally prefer investing in a Private Limited Company rather than an LLP or Proprietorship.
Reason (R): A Private Limited Company allows for the clear allocation of equity shares, separation of ownership from management, and offers higher corporate governance standards.
Reason (R): A Private Limited Company allows for the clear allocation of equity shares, separation of ownership from management, and offers higher corporate governance standards.
✅ Correct Answer: A
Correct Option: A. Concept: Investor Preferences.
Logic: Assertion is True: Professional investors (VCs) almost never invest in Proprietorships or Partnerships because there is no "stock" to buy.
Reason is True: A Private Limited Company has a share capital structure.
This allows investors to buy a specific percentage (e.g., 10 percent equity) without becoming liable for the company's daily operations.
Causal Link: Because the Company structure supports this separation and share-issuance (Reason), it is the preferred vehicle for investment (Assertion).
Logic: Assertion is True: Professional investors (VCs) almost never invest in Proprietorships or Partnerships because there is no "stock" to buy.
Reason is True: A Private Limited Company has a share capital structure.
This allows investors to buy a specific percentage (e.g., 10 percent equity) without becoming liable for the company's daily operations.
Causal Link: Because the Company structure supports this separation and share-issuance (Reason), it is the preferred vehicle for investment (Assertion).