Free Nature and Forms of Business Organisation MCQs with Answers

• A. The business may sell goods on credit
• B. The business can employ paid workers
• C. The owner has unlimited liability for business debts
• D. The business keeps records of transactions

Explanation: A sole proprietor and the business are legally treated as one person, so the owner bears unlimited liability.

• A. A government appointment order
• B. A decision of the business creditors
• C. A share certificate issued by a company
• D. An agreement between the partners

Explanation: A partnership arises from an agreement to carry on a business and share its profits.

• A. The company avoids every business loss
• B. The company has a separate legal identity
• C. The company needs no financial records
• D. The company cannot be sued by creditors

Explanation: A company is generally a legal person separate from its members, which allows it to own property and incur liabilities in its own name.

• A. Sole proprietorship
• B. Ordinary partnership
• C. Limited company
• D. Unregistered joint venture

Explanation: In a limited company, shareholders usually risk only the amount unpaid on their shares or the amount they have agreed to contribute.

• A. Limited to the value of company shares
• B. Limited to the partner's initial investment
• C. Transferred entirely to the government
• D. Unlimited and usually joint with other partners

Explanation: In an ordinary partnership, partners may be personally liable for the firm's debts, and each partner can bind the firm in the ordinary…

• A. Member control based mainly on one member, one vote
• B. Voting power based entirely on capital invested
• C. Ownership restricted to government departments
• D. Profit distribution only to outside lenders

Explanation: Cooperatives are formed to serve the common interests of their members, and democratic control commonly follows the one member, one vote…

• A. The company must operate without earning profit
• B. The company continues despite changes in its members
• C. The company can never change its business activity
• D. The company is managed permanently by one director

Explanation: Perpetual succession means that a company's existence is not ended by the death, insolvency, or transfer of shares by its members.

• A. Cooperative society
• B. Public limited company
• C. Sole proprietorship
• D. Multinational corporation

Explanation: A sole proprietorship is simple to establish and allows one person to control management and receive the profits.

• A. Invite the public to subscribe for its shares
• B. Have no separate legal identity
• C. Give every shareholder unlimited liability
• D. Operate without any governing documents

Explanation: A public limited company can generally invite the public to subscribe for its shares, subject to legal requirements.

• A. Profits must always follow capital contributions
• B. The agreed partnership terms govern profit sharing
• C. The partner with more capital receives all profits
• D. Profits are automatically paid to creditors first

Explanation: Partners may agree on a profit-sharing ratio that differs from their capital contributions.

• A. Memorandum of association
• B. Certificate of incorporation
• C. Articles of association
• D. Statement of capital

Explanation: The articles of association contain the company’s internal rules, including procedures for meetings, voting and management.

• A. Partnership at will
• B. General partnership
• C. Limited partnership
• D. Particular partnership

Explanation: A particular partnership is created for a specific undertaking or venture and normally ends when that venture is completed.

• A. Mutual agency
• B. Unity of ownership
• C. Separate personality
• D. Perpetual succession

Explanation: Mutual agency means that each partner can represent the firm and bind the other partners while acting within the ordinary scope of…

• A. The partnership automatically becomes a company
• B. The partnership is generally dissolved
• C. The deceased partner’s share passes to the government
• D. The remaining partners lose their personal assets

Explanation: Unless the agreement provides otherwise, the death of a partner generally causes dissolution of the partnership.

• A. Capital contributed only by employees
• B. Management restricted to one owner
• C. Ownership divided into transferable shares
• D. Membership ending whenever a shareholder dies

Explanation: A joint stock company raises capital by dividing ownership into shares held by its members.

• A. External auditor
• B. Trade union committee
• C. Company registrar
• D. Board of directors

Explanation: The board of directors is responsible for directing the company and making major policy decisions on behalf of shareholders.

• A. It generally restricts the transfer of its shares
• B. It must have no shareholders
• C. It must sell shares only to the government
• D. It cannot appoint directors

Explanation: A private company generally places restrictions on the transfer of its shares and does not invite the public to subscribe for them.

• A. Maximise returns for outside investors
• B. Promote the common economic interests of its members
• C. Transfer all business risk to creditors
• D. Replace every private business in a market

Explanation: A cooperative society is formed to serve the shared economic interests of its members through mutual help and democratic participation.

• A. Sole proprietorship
• B. Statutory corporation
• C. Partnership
• D. Cooperative bank

Explanation: A partnership is a business relationship in which two or more persons agree to carry on a business and share its profits.

• A. The colour of the business premises
• B. The daily weather of the operating area
• C. The personal hobbies of the owners
• D. The desired legal status and capital requirements

Explanation: The choice depends substantially on factors such as desired legal status, liability, continuity, control and the amount of capital needed.