Special Case Of Sole Proprietorship Flashcards
Discuss Limited Life
Limited Life - dis
The owner and his business are legally indistinguishable. Death, imprisonment or insanity automatically terminates the operations of the firm. If the proprietor’s heirs attempt to operate the business after his death, legally a new firms has to be created.
#legally indistinguishable. #death, imprisonment or insanity automatically terminates the operations of the firm. #heir attempt to operate the business after his death, legally a new firm has to be created.
What are the seven advantages of Sole Proprietor?
Ease of formation Full control of business Flexibility Direct reward Savings in tax Secrecy Ease of dissolution
What are the four disadvantages of Sole Proprietorship?
Unlimited Liability
Limited Life
Limited sources of funds
Lack of specialized management skills.
Discuss ease of formation.
Ease of formation - Any person with legal status to act for oneself. Once the registration is approved by the Accounting & Corporate Regulatory Authority, the owner can begin to do business. This can be done with very little capital and without proper offices.
#Act for oneself #Very little capital and without proper offices.
Discuss full control of business
Full control
Full control of business - the owner decides how and when he wants to work. He has full control of the business.
Discuss flexibility
Quick decisions and respond to changing situations.
Flexibility - The owner can make quick decisions and respond to changing situations.
Discuss Direct reward.
Direct reward - The sole proprietor is rewarded directly from his own effort. His rewards are proportionate to the effort put into the business.
#rewarded directly from his own effort. #proprtionate to the effort.
Discuss Savings in tax.
No tax imposed on the proprietorship as business organisation. However, the proprietor must pay personal income tax on the net profit of the business as well as the salary he must pay himself. Personal income tax is on a graduated scale.
#No tax imposed on the proprietorship
#Proprietor must pay personal income tax
#On graduated scale. {0% - 20%}Discuss secrecy.
As the proprietor is doing business for himself, he does not share confidential information with anyone. This is especially useful if success of the business depends on a secret formula or special techniques known only to the owner.
#Doing business for himself. #Not share confidential information #Special techniques known only to the owner.
Discuss ease of dissolution
Sell his inventory, pay his business debts and de-register his business.
Should the owner decide to end the business, all he needs to do,is to sell his investors, pay his business debts and de-register his business.
Discuss Unlimited Liability
Unlimited Liability - The owner is personally liable to an unlimited extent for his business debts. There is no dsitinction between his personal and commercial assets. If his business fails his personal property will be at risk if his trading losses exceed his capacity to repay any debt.
#Personally liable to an unlimited extent #No distinction, his personal assets and commercial assets. #Fails, personal property at risk #Fails, trading losses exceed his capacity to repay any debt.
Discuss Limited Sources Of Funds.
Limited sources of funds -
It is difficult for a sole proprietor to raise money either to start a new venture or expand his business. He is limited to his personal savings and what he can borrow from friends and relatives. Banks and other financial instructions are generally reluctant to lend to individuals for business purposes.
#Difficult to raise money. #He is limited to his personal savings and what he can borrow from friends and relatives. #Banks and other financial institutions are reluctant to lend individuals for business purposes.
Discuss Lack of specialized management skills.
Must rely on his own skills and judgement.
Lack of specialized management skills - the proprietor must rely on his own skills and judgement on managing his business. As the sole manager, he must be skilled in marketing,financial, personal and production matters. It is unlikely that he is an expert in all these areas and not able to hire professional managers as he has limited funds.
