Sole Proprietorship: Advantages and Disadvantages
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Questions and Answers

What is the primary advantage of a sole proprietorship in terms of decision-making?

  • The owner has unlimited resources to invest in the business.
  • The owner has to share the decision-making authority with others.
  • The owner has the sole decision-making authority. (correct)
  • The owner has to seek approval from a board of directors.

    • What is the primary risk of unlimited liability in a sole proprietorship?

  • The owner's personal assets can be used to pay the debts of the business. (correct)
  • The owner's personal assets are not affected by the business debts.
  • The business may not be able to pay its obligations.
  • The business may have to close down.

    • Why is it easy for a sole proprietor to maintain secrecy in the business?

  • Because the owner has the sole decision-making authority and is not legally required to publish business accounts. (correct)
  • Because the owner has to share information with others.
  • Because the owner has to publish business accounts.
  • Because the owner has limited resources.

    • What is the implication of a sole proprietorship having no separate legal entity?

    <p>The business is dependent on the owner's life and will cease to exist if the owner dies.</p> Signup and view all the answers

    What is the primary limitation of a sole proprietorship in terms of raising capital?

    <p>The owner has limited resources to the extent of his personal assets and borrowings.</p> Signup and view all the answers

    What is the primary advantage of a sole proprietorship in terms of incentive?

    <p>The owner gets a maximum incentive if he/she performs better.</p> Signup and view all the answers

    What happens to the business if the sole proprietor falls ill, becomes bankrupt or insolvent, or dies?

    <p>The business may come to an end</p> Signup and view all the answers

    What is a disadvantage of a sole proprietorship due to the proprietor's lack of skills and expertise?

    <p>The proprietor is burdened with too many tasks</p> Signup and view all the answers

    Why may a sole proprietor make wrong decisions?

    <p>Because they have to make all the decisions alone</p> Signup and view all the answers

    What type of business is suitable for sole proprietorship?

    <p>Small-scale businesses</p> Signup and view all the answers

    What is a partnership?

    <p>A business owned by two or more people</p> Signup and view all the answers

    Why do many people choose sole proprietorship despite its disadvantages?

    <p>Because it has many advantages</p> Signup and view all the answers

    What is the role of an active partner in a partnership firm?

    <p>He acts as an agent of all the other partners on a day to day basis.</p> Signup and view all the answers

    What is required of an active partner who wishes to retire from the firm?

    <p>He must give a public notice about his retirement.</p> Signup and view all the answers

    What is a characteristic of a dormant partner?

    <p>He does not participate in the daily functioning of the partnership.</p> Signup and view all the answers

    What happens if an active partner retires without giving a public notice?

    <p>He will be liable for all acts done by other partners after his retirement.</p> Signup and view all the answers

    What is true about a nominal partner?

    <p>He lends his name to the partnership.</p> Signup and view all the answers

    What is the responsibility of a dormant partner in case of retirement?

    <p>He need not give a public notice of his retirement.</p> Signup and view all the answers

    What is the prescribed minimum paid-up capital for One Person Companies (OPCs) as per the Companies Act, 2013?

    <p>No minimum paid-up capital prescribed</p> Signup and view all the answers

    What is a unique feature of One Person Companies (OPCs) under the Companies Act?

    <p>Special privileges and exemptions</p> Signup and view all the answers

    In what scenario can a One Person Company (OPC) convert to another type of company?

    <p>After two years of incorporation</p> Signup and view all the answers

    What is a mandatory requirement for the name of a One Person Company (OPC)?

    <p>The words 'One Person Company' in brackets</p> Signup and view all the answers

    Who is eligible to form a One Person Company (OPC) in India?

    <p>Only Indian citizens and residents</p> Signup and view all the answers

    What is the purpose of nominating a person in the memorandum of association of a One Person Company (OPC)?

    <p>To take over as the member in case of death or incapacitation</p> Signup and view all the answers

    What is the maximum number of OPCs a natural person can be a member or nominee of at any point in time?

    <p>One</p> Signup and view all the answers

    What is a common characteristic between OPC and sole proprietorship?

    <p>Single ownership</p> Signup and view all the answers

    Why can't minors be members or nominees of OPCs?

    <p>Legal prohibition</p> Signup and view all the answers

    What is the key difference between OPC and sole proprietorship?

    <p>Liability protection</p> Signup and view all the answers

    What is the implication of OPC being a separate legal entity?

    <p>Promoter's assets are protected</p> Signup and view all the answers

    What does the term 'company' essentially imply?

    <p>An association of persons for some common object</p> Signup and view all the answers

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