Question

limitations of the sole proprietorship......
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Answer 1

Answer:

The main disadvantages to being a sole proprietorship are: Unlimited liability: Your small business, in the form of a sole proprietorship, is personally liable for all debts and actions of the company. Unlike a corporation or an LLC, your business doesn't exist as a separate legal entity.

Explanation:

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Answer 2

Answer:Limitations of Sole Proprietorship:

1. Limitations of management:

The proprietor has certain limitations, for example, he/she must rely upon his/her own skills and judgement in managing the business. Few proprietors have all of the management skills required for financing, marketing, purchasing, supervising personnel, and related functions. Not only does this limit the size of the business, but it also contributes to the relatively high rate of failure among sole proprietorships.

2. Unlimited liability:

Since the owner takes all the profits, he must also accept full personal responsibility for all the losses, even to the extent of his personal possessions. Because in the eyes of law, the firm (sole proprietorship business) and sole proprietor are one and the same and not two different entities, and therefore, the liabilities of the business are the personal liabilities of the proprietor.

3. Lack of continuity:

An enterprise that depends on one man comes to a close if that man becomes seriously ill or dies. Such a situation, arising out of lack of continuity, proves disastrous for employees and all those persons and institutions who had business relations with such a business.

4. Limitations of size:

Since a sole proprietary business is conducted on a small scale, it poses- certain problems, especially in raising sufficient financial resources to support expansion, modernization, and diversification plans of business, and also providing meaningful opportunities and welfare measures to employees.

Suitability of the Sole Proprietorship Form:

This form of business ownership is most suited in cases, where:

(a) The amount of capital needed is small and the quantum and extent of risk are not heavy.

(b) Direct contact with the customers is essential.

(c) The size of demand is not very large.

Obviously these conditions are present in a small business. Thus, the majority of sole proprietorships are found in retail businesses, the professions, and personal service trades. In retail businesses (grocery stores, for instance), sole proprietorship is suitable because it needs small amount of capital and carries with it low amount of risk.

As far as professions go (like tax consultants, management consultants, lawyers, architects, etc.), the call for individual skill and the need for the secrecy in regard to the affairs for clients are the dominant reasons that favour sole proprietorship. In personal (or direct) service trades like hair dressers, tailoring, beauty parlours, interior decorators, etc. the factor of direct contact with the customer favours sole proprietary business.