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Question
Define the following business entities:
Sole Proprietorship
Solution
- A sole proprietorship, also known as a solo tradership, individual entrepreneurship, or proprietorship, is a type of business owned and controlled by one person who is the sole recipient of all earnings or losses and is solely responsible for all risks.
- The only owner is personally liable indefinitely.
- All activities are carried out by a single person in a sole proprietorship entity. This sort of sole proprietorship is appropriate for small-scale businesses.
- Some features of a sole trader are:
- Single ownership
- No profit sharing
- Unlimited liability
- No legal formalities to start a business
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What do you understand by a sole proprietorship firm?
Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation. Why?
Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood corner shop selling accessories such as artificial jewellery, bags, hair clips and nail art to a retail chain with three branches in the city. Although she looks after the varied functions in all the branches, she is wondering whether she should form a company to better manage the business. She also has plans to open branches countrywide.
(a) Explain two benefits of remaining a sole proprietor
(b) Explain two benefits of converting to a joint stock company
(c) What role will her decision to go nationwide play in her choice of form of the organisation?
(d) What legal formalities will she have to undergo to operate business as a company?
