Merits and Demerits Of Sole Proprietorship

April 30, 2020

MAY 1, 2020
DAY 4

THANK YOU FOR LOGGING IN.

GOOD MORNING BOYS. BEFORE WE START WITH OUR MERITS AND DEMERITS OF SOLE PROPRIETORSHIP, LET US FIRST SEE YESTERDAY'S CASE STUDY ANSWER.

CHARACTERISTICS OF BUSINESS RISK ARE AS FOLLOWS:

1. RISK ARISE DUE TO UNCERTAINTY

LINES ARE " SHE ACKNOWLEDGES----------------NATURAL CALAMITIES, ETC"

2. RISK DEPENDS ON THE NATURE AND SIZE OF BUSINESS

LINES ARE "AS HER BUSINESS IS OPERATED------------RELATIVELY LOW."

3. PROFIT IS THE REWARD FOR RISK TAKING

LINES ARE " AT THE SAME TIME----------------------------ORGANISATIONS."

4. RISK IS ESSENTIAL FOR EVERY BUSINESS

LINES ARE " ALSO, SHE FEELS THAT------------------------ALL TOGETHER."

LEARNING OUTCOMES- At the end of the lesson, students will be able to:
1) Discuss the merits of sole proprietortship.
2) Explain the demerits of sole proprietorship.

WATCH MERITS AND DEMERITS OF SOLE PROPRIETORSHIP THROUGH THIS VIDEO AND THEN TAKE DOWN THE NOTES:

Q.4 Explain the advantages of sole proprietorship.(5)
Ans - 1. Quick Decision Making-
a) Freedom to take decisions without consulting anyone helps the owner to take prompt decisions.
b) Quick decisions help sole proprietor to take timely advantage of the market opportunities.
2. Confidentiality of information -
a) Owner enjoys control over the business decisions and management thus is able to keep all the important business information to himself.
b) He can keep all business operations confidential .There is no legal requirement to publish firms accounts, business secrecy is maintained well.
3. Direct incentive-
a) Sole Proprietorship has only one owner so there is no sharing of the profits.
b) Owner is the direct recipient of all the benefits arising from his or her efforts. No sharing motivates the owner to work hard and earn more and more profits.
4. Sense of Accomplishment-
a)Working for oneself gives self satisfaction and sense of accomplishment.
b) Business success builds confidence in one's abilities and this motivates the proprietor to maximize the profits of his business.
5. Ease of formation and closure -
a) Minimum legal formalities helps the individuals to start and close business with ease.
b) No separate law, makes sole proprietary business the least regulated, thus business can be continue to work as per the wish of the owner.

Q.5 Explain the limitations of sole proprietorship .(4)
Ans-1.Limited resources-
a) Sole proprietor business depends on owner's personal savings or borrowed funds.
b) Borrowings for sole proprietors depends upon the personal savings or assets, so there are lesser opportunities to raise long term funds which doesn't allow the business to grow. Thats why it is suitable only for small scale businesses.
2.Limited life of a business concern-
a) Since proprietor and business are considered as one and the same in the eyes of the law.
b) Death, insolvency, insanity, etc affects the business and at the same time leads to the closure of the business.
3. Unlimited Liability-
a) It is the major disadvantage of sole proprietary business. If the business fails to meet its dues to outsiders from business assets then outsiders can recover their dues from owner's personal assets.
b) Thus, a sole proprietor takes high degree of risk in case of expansion of business.
4. Limited managerial ability -
a) In sole proprietorship owner of business is only responsible for all business activities of purchasing, selling, financing, etc.
b)An individual cannot be an expert in all the fields so there is a possibility of taking decisions at times which are not beneficial for the business and limited resources do not allow the sole proprietor to employ talented employees .

Q.6 What is the suitability of sole proprietorship business? (3)
Ans- 1. It is suitable for small scale businesses.
2. It is suitable for those businesses which can be started with a small amount of capital.
3. It is suitable for those businesses which provide personal attention to the customers like retail shops, hair salons, small restaurants, etc.