What is sole proprietorship? give its limitations.
Answers
Explanation:
it refers to that type of business where a single person is able to run the business and he is only liable for all the profits and losses accuring in the business....
Following are the limitations:-
lack of decision making.
bearer of all losses.
Hey Mate !
ΔThe sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debtsΔ
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.
Hope it helps u !