Question

Abdul is a single owner of a shoe manufacturing business. His business was suffering from continuous losses. To revive his business and to expand, he took a loan of 20 lakhs from 'Progressive Finance Co.' In spite of starting new range of products and great effort by Abdul, business continued to suffer losses. This resulted in the declining assets and mounting debts. Abdul started defaulting on his repayment schedule. Finance company served him final notice to repay the loan and settle the account. He proposed the finance company to take over the business assets and clear their dues. Finance company took over the assets of the business in part settlement of their dues as the assets were not sufficient to settle the debts and they claimed the remaining amount from Abdul from his personal assets. Abdul refused to do so on the ground that loan was taken for the business and not by him for personal use.
1. Name the form of business organization followed by Abdul.
2. Is the finance company justified in asking for remaining amount from Abdul's personal assets? justify your answer by giving suitable feature of the business organization.

Answer 1

(i)- Sole proprietorship-The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

(ii) Unlimited liability: Your small business, in the form of a sole proprietorship, is personally liable for all debts and actions of the company.