Question

Imagine that a friend tells you about their idea to start a sports therapy clinic which they plan to operate as a sole proprietorship. Respond to the following in a minimum of 200 words: What benefits and risks would you advise your friend to be aware of

Answer 1

I would explain to my friend that Sole Proprietorship is a legal form of ownership which goes back to the earlier days of civilization itself. In this form of organization, my friend would be the only individual who shall promote and control the business undertaking and shall also need to assume the entire risk all on him. My friend shall need to infuse the entire capital for commencing the business and also for running the same. My friend could take all the profits but would have to bear all the risks alone as well. However, it shall be a simple form of organization and shall thus not require any formalities to set up the same.

I would also highlight my friend about certain benefits and risks of this kind of ownership structure. The advantages of this type of ownership would be that the formation formalities shall be very easy for him because it shall be very rarely interfered by any form of legal formalities. It would further help in establishing better control over the all types of business activities for my friend. Further it would have flexibility in Operations and there could also be a possibility for the retention of business secrets of my friend and it shall be relatively easier to raise finance in this type of Organization for him. There shall be direct motivation granted to my friend as the profits need not be shared with anyone. There shall further be promptness in decision-making activities and direct accessibility to consumers thereby emphasis could be laid on the customer service by my friend. It shall have an inexpensive management with no legal restrictions and shall generate the opportunities of self-employment for my friend.

However, the risks of this type of ownership are that it shall have limited resources to explore and would generate the most of the investments from the family resources only, in general, for my friend. It shall also suffer from the limitations of managerial ability as my friend need not be an expert in all kinds of managerial functions that he may intend to undertake. The business shall bear unlimited liability hence personal assets of my friend could also be attached in meeting the business liabilities. There is further uncertainty in continuation of the business of that of my friend becomes immobile or God forbid, dies. There shall also be a limited scope of hiring trained and qualified employees due to lack of career growth opportunities in the business. Also economies of large scale could not be achieved much in such a business form.