Question

Describe two advantages and two disadvantages of the sole proprietorship form of business organization as compared to a corporation.

Answer 1

Sole proprietorship is a business form owned by an individual. It has no co-owners or partners. A corporation is a form of business that has no particular ownership. Its shareholders are its owners and keep on changing as well.

Two advantages of sole proprietorship form of business over corporation are:

1. Its easy and cheap to start a sole proprietorship form of business. The amount of capital invested is less and the statutory requirements are also not as stringent as for a corporation. The owner of the business can invest as per his capacity and start the business. Sole proprietorship can be started on a smaller scale.

2. The owner of a sole proprietorship form of business has full control over the business and does not have to share the profits of the business. While in a corporation profits are to be shared among shareholders in the form of dividends.

Two disadvantages of sole proprietorship over corporation are:

1. The liability of the owner in a sole proprietorship is unlimited. Even the property of the owner can be attached to pay off debts and liabilities. While in case of a corporation the liability of the owners is limited to the value of shares held by each/.

2. Continuity of business is affected in case of death of a sole proprietor. The business come to an end in case the owner dies. While there is continuity of operations in case of a corporation. The business shall continue even if one or more shareholders die..