Question

Aruna, passionate about baking, opened a bakery shop. She borrowed ₹50,000 from her father and took a loan of Rs. 1,00,000 from a bank to start the business. To attract customers, she set the prices too low. Later, she noticed that the revenue earned was not enough to cover the costs. When the loan became due, she was unable to pay. The bank recovered the loan from Aruna’s personal assets, including her savings and property. Can Aruna’s personal property be called upon to pay her business debts? Give reason in support of your answer. State the feature of sole proprietorship highlighted in the above case.

Hint:

In sole proprietorship, owner’s personal assets are at risk due to unlimited liability.

Answer 1

Aruna's personal property is liable for her business debts.

Justification:
A sole proprietorship merges the owner and the business legally. This results in unlimited liability for the owner, allowing personal assets to cover business debts when business assets are insufficient.

Sole Proprietorship Characteristic Emphasized:
Unlimited Liability —
The proprietor bears personal responsibility for all business debts. Creditors may seize personal assets to satisfy business failures.