Question

Aruna, passionate about baking, opened a bakery shop. She borrowed ₹ 50,000 from her father and took a loan of ₹ 1,00,000 from a bank to start the business. To attract customers, she set the prices too low. Later on she noticed that the revenue earned by her was not enough to even cover the costs. When the loan amount became due, she was not in a position 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.

Answer 1

Yes, Aruna’s personal property can be used to pay her business debts.

Reason: A sole proprietorship gives the owner unlimited liability. This means that if the business incurs losses or owes money, the owner’s personal assets, such as savings and property, may be used to satisfy the debts.

Feature of sole proprietorship highlighted: Unlimited liability.