1 Compare the advantages and disadvantages of sole proprietorships.
2 Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships.
Compare advantages and disadvantages of sole proprietorships.
A sole proprietorship is a business owned and operated by one person (owner). The owner and the business entity are one and the same. The liability of the owner is unlimited with respect to his debts.
Advantages of soleproprietorship
2. Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships.
Partnership is owned and operated by two or more owners or partners.
A general partnership is where all partners have equal authority to manage the day-to-day affairs of the partnership. The liability of the partners is unlimited. The personal assets can also be attached by the creditors.
A limited partnership on the other hand is one where a partner is a ‘silent partner”. The partner cannot take part in the day-to-day management of the partnership. He is only an investor and his liability is also limited. At least one partner should be a general partner in a partnership.
Advantages of partnership are ease of formation, regulations are few, more partners means more expertise, taxes of the partnership are passed through the income tax returns of the owners like sole proprietorship. Business risk is shared. Business secrets can be safeguarded. Flexibility in business operations. It is suitable for small organizations where the capital needs are not very high.
Disadvantages of partnership
1 Unlimited liability. The personal assets of the owners can be attached by creditors. The partners are jointly and severally liable for the liabilities of the business.
2 Friction among partners may arise.
3 Each partner is an agent of the partnership and is liable for actions by other partners.
4 Instability of partnership firm if a partner decides to leave.
5 Difficulty in transferability of the business interest.