Advantages and Disadvantages of Each Type of Business

Topics: Types of companies, Legal entities, Corporation Pages: 4 (1066 words) Published: January 7, 2013
Ouestion (a)
Sole Proprietorship
Sole proprietorship is a business owned one person, who has full control of the business and how it is run. They also own all the assets of the business and any profit that it makes. In the same vein, they are also responsible for all the debts and liabilities the business accrues.

There are lots advantages by being a sole trader. The first advantage is easy formation. The formation of sole proprietorship business is very easy and simple. No legal formalities are involved for setting up the business excepting a license or permission in certain cases. The entrepreneur with initiative and certain amount of capital can set up such form of business.

Another advantage of sole proprietorship is flexibility in operations. The sole proprietorship business is undertaken on a small scale. If any change is required in business operations, it is easy and quick to bring the changes.

The third advantage of sole proprietorship is inexpensive formation and management. The cost of formation of a sole proprietorship is the minimum because no cost is involved in its formation excepting the license fee in certain cases. The management of the business is also inexpensive as no specialists are normally appointed in various functional areas of the business which is the added advantages.

Not only that, sole proprietorship do have some disadvantages. The first disadvantages is limited resources. The financial resources of any small entrepreneur as an individual is limited. He mainly finances from his own savings or borrows from financial institutions, friends and relatives as per his capacity. Thus, limited resource is the major drawback of this form of business.

Another disadvantage is unlimited liability. Since the liability of the sole proprietor is unlimited, the private properties of the proprietor is also at risk. When the business fails, the private properties of the owner are utilized to pay off the business debts. Thus, the...
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