Preference of Sole Proprietorship over Other Forms of Business Organizations

Sole proprietorship is the form of organization in which an individual normally introduces his own capital. He uses his own skill and intelligence in the management of its affairs and is solely responsible for the results of its operation. Sole tradership is ideally suited for the business of small size like drug stores, beauty shops, repair shops, amusement services, insurance services, professional services of doctors, chartered accountants, etc. The main reasons of the preference of sole proprietorship over other forms of business ownerships are as follows:

1. Ease of Formation

Sole proprietorship can be easily established and no. red tapism is involved in it.

The sole proprietor can take decisions promptly on the quantity, quantity and the price of his goods. He is his own boss.

The sole proprietorship form of organization provides maximum incentives to the owner. He receives 100% of the profit in the business.

The sole proprietor can maintain Secrecy in all business matters. If in a particular business production requires secret skill or technique, sole proprietor form of organization is then best suited.

The individual entrepreneur system has an excellent credit rating if the sole proprietor has his own personal property.

The sole proprietor enjoys greater freedom and flexibility in making business decisions according to the economic conditions in this form of organization.

In one man’s business, the owner enjoys being the boss and that sense of accomplishment gives him satisfaction.

The business can be dissolved at will by the owner and no legal formalities are involved in it.

The sole trader has personal touch with the customers end can attend to their demands promptly and satisfactorily in this type organization.

Sole proprietorship has special appeal for persons with limited financial resources. Being one’s own boss and keeping all the profits are strong incentives to Work hard and succeed. Sole trading has special place in our Country which is a land of too little capital but too many men. So the future of sole proprietorship is quite bright in Pakistan.

1. Define sole proprietorship. What are its main characteristics? (Ans:1)

2. What do you understand by sole proprietorship? What are its merits and demerits? (Ans:2)

3. What do you understanding by sole trading concern? Discuss its advantages and disadvantages. (Ans:2)

4. Discuss the advantages and disadvantages of sole trading business, what are the prospects of such a business in Pakistan? (Ans:2)

5. “One man control is best in the world if that one man is big enough to manage everything.” Explain this statement (Ans:3)

6. One man control is most suitable for medium scale business” do you agree? Discuss c (Ans:3)

7. On what points sole proprietorship is preferred to other forms of business organization (Ans:4)

8. Many local retail stores and service establishments such as barber shops, laundries, general merchants, doctor clinic, etc., are owned and managed by one man. What are the reasons behind it? (Ans:2)

9. Explain the following statement regarding the sole proprietorship, there are a lawful lot of them but they do not r very much? (Ans:3)

Ans: (8)(1) Ease of formation (2). Ease of raising capital (3) Extent of liability (4) Degree of control over business (5) Decision-making opportunities (6) Flexibility in operation (7) Maintenance of secrecy (B) ‘Continuity of existence (9) Freedom from government regulations (10) Impact of taxation.

Ans: The legal position o sole trader is as under:

The sole proprietor has no separate legal existence apart from the proprietor who owns it. The proprietor and his business have one personality.

If the business is lawful, it can be established th ease and without performing any legal formalities.

The liability of the sole proprietor is unlimited. Not only his business property but also his personal property is liable to pay for his business debts.

sole trader is not governed by any special etc. It is only subject to general laws like laws of price fixing, sale of goods, etc.

Ans: In spite of stiff competition from the large scale business, the sole proprietorship will survive where the market for the good is local, where personal contract with the customers is required, where the business is low cost and where the sole trader has personal touch with the customers.

Ans. Unlimited liability means that the individual owner is personally liable for all his debts of the business. If the persons original investment in business is not sufficient to meet the business liabilities, his private assets are to be used to discharge the business liabilities

Ans. Sole proprietorship is suitable in (a) retail shops (b) in businesses where personal services are required such as beauty parlours, doctor, lawyers etc. (c) in businesses of artistic goods production such as painting, tailoring etc.

Ans. The sole proprietor and his business are one and the same.

Indicate the correct answer:

(1) A sole-trade business is started by

(a) At least two persona (b) at least seven persons (c) only one person.

(a) limited Only the his investment in the business. (b) Limited to total property of the business. (c) Unlimited.

(a) Independently. (b) Together (c) for others

(a) Employ a servant. (b) Take a partner (c) take a partner and employ a servant.

(a) the sole proprietorship (b) the partnership (c) the private limited company (d) joint stock company.

(a) death of the owner (b) bankruptcy of the owner (c) insanity of the owner (d) all of the above.

(a) unlimited liability (b) limited liability (c) internal liability (d) external liability.

(a) limited liability (b) unlimited liability (c) long term continuity of business (d) professional management.

(Ans. [1(c), 2(c), 3(a), 4(a), 5(a), 6(b), 7(d) 9(a), 9(b)]

[Ans: Yes: (b), (d)(e)( No: (a), (c) (f) (g)]