Subeer, a tech-entrepreneur and his friend Harish, an investment banker planned to start a business organization where they can exercise control over the business, manage it with limited liability and that its continuity is not affected by entry or exit of members. They intend to maintain the confidentiality of the business operations as well. Identify the form of business organization best suited for them giving reasons for the choice?

Question

Accepted Answer

Private Company. Reasons for the choice: (i) Limited liability — the liability of members is limited to the extent of the amount of shares held by them, so Subeer and Harish will not be personally liable for the business debts. (ii) Perpetual succession — the company continues to exist even when members join or leave; its continuity is not affected by the entry or exit of members. (iii) Control — management generally remains in the hands of the owners, and only two directors are required to constitute the quorum for the meetings. (iv) Confidentiality — a non-member cannot inspect the copies of the profit and loss account filed with the Registrar, which keeps the business operations confidential. (v) It does not invite the public to subscribe for its shares and hence is not required to issue a prospectus.