Question

Mention any four limitations of sole trading concerns.

Answer 1

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Limited capital:
Its capital is limited due to the investment of a single owner. Such limited capital is insufficient for large-scale production and marketing of goods and services.

Limited managerial ability:
It is managed by a single owner who may not have adequate managerial skills and technical abilities. So, it may face various managerial deficiencies.

Unlimited liability:
The sole trader does not have limited liability to his business capital. The owner must pay the liability of his business even by selling his private properties if the assets of the business are not sufficient to meet such liabilities.

Loss in absence:
It may come to close if the proprietor remains absent from his business due to his illness or other reasons. So, if the owner or proprietor is absent, the business may face the loss.

Uncertain life:
Its life is closely connected with the life of the owner. So, it can be terminated any time due to death, lunacy, insolvency or disability of the owner.

Limited scope of expansion:
It has a limited scope for expansion and development. Due to the limited amount of capital and managerial skills, its activities cannot be diversified.

Limited scope for opportunity:
It offers limited opportunities to his employees. Due to the limited scope of expansion and development of business, its employees get limited opportunities for training, higher studies, career development, attractive salaries, and other benefits.

Answer 2

The four limitations of the sole trading concerns are as follows:

1. Limited capital
2. Limited managerial ability
3. Unlimited liability
4. Loss in absence

Explanation:

• You will have to carry an unlimited liability for debts.
• There will be no legal distinction between business and private properties. •
• There will be a limitation to raise the capital.
• You will have to be responsible for making everyday businesses.
• It will be difficult to retain high caliber employees. •
• The sole traders will have to run their business independently. That is without anyone’s interference.

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