A group of entrepreneurs decided to start a large-scale business in the automobile industry to manufacture eco-friendly electric cars under the name 'EcoRide Motors'. Since the business required huge capital investment for setting up factories, research, marketing, and distribution networks, the founders decided to form a business organisation. They reviewed their circumstances, finances and goals. They decided to legally organize the company so it has limited liability. (i) Identify the form of business organization can be adopted by EcoRide Motors (ii) State and explain any four features of this form of organization.

Question

Accepted Answer

(i) EcoRide Motors can adopt the Joint Stock Company form of business organisation, as the venture is large-scale, requires huge capital investment and the founders want limited liability.

(ii) Four features of this form of organisation:
(a) Artificial person — A company is created by law and exists as a distinct person, though without a body or conscience. Like a human being, it can buy, sell and own property, sue others and be sued by others, and it can only be terminated by law.

(b) Separate legal entity — The company has an independent status, separate and distinct from its members. It is not liable for the actions of its members and its members are not liable for the actions of the company.

(c) Limited liability — The liability of shareholders is normally limited to the amount of shares held by them or the guarantee given by them. Shareholders cannot be called upon to pay the debts of the company from their personal property.

(d) Common seal — Being an artificial person, the company cannot sign documents itself; it uses a common seal with its name engraved on it, which is equivalent to its signature on official documents.

These features make the company form most suitable for a large-scale venture like EcoRide Motors, which needs huge capital and continuity of existence.