Question

Address the statement - "It is more beneficial to operate as a company than as a sole trader." If you are in agreement or not in agreement with this statement, state the reasons why.

Answer 1

Although it is true that every form of business organization have its’ own merits and demerits. So in one sentence we can not reject or accept any type of business organization because in different types of business condition & environment a specific type of business form may be suitable and a different type of business form may be inappropriate.

But if we need to select a business form from sole trade and company then company form of business will be more suitable. Hence we can say that It is more beneficial to operate as a company than as a sole trader due to following advantages of company form of business organization;

1. Company form of business gives benefit of limited liability to the owners thus shareholders will not fear of unlimited liability in case of huge losses. But in case of sole trade owner will be responsible for all losses and liability will be unlimited.

2. Now-a-days , every type of business requires huge capital investment so in case of company we can raise required capital from market but in case of sole trade raising of capital is not so simple.

3. Company form of business have permanent existence so this form of business is not affected by the incoming and exit of owners.

4. Easy transfer of ownership is also a benefit of company form of business because in case of sole trade shares are not transferable.

5. Economy of scale can be obtained in case of company form of business because companies operate at huge level hence in case of sole trade benefits of economy of scale can not be obtained.

6. More accurate decisions are made in case of company because decisions are made by board of directors & group of persons of top management, but in case of sole trade only owner takes decision thus in case of company decisions are more accurate & reasonable.

7. We see more efficient management in case of company in compare to sole trade.

8. More social benefits can be delivered in case of company form of business because sole trade operates at lower level but company operated at higher level and company associates with more numbers of persons.

9. In case of company business risk is spread to more number of peoples but in case of sole trade all business risk is borne by the single person thus company is good form of business.

So on the basis of above reasons it is true that it is more beneficial to operate as a company than as a sole trader. Although company form of business have some limitations also but its’ advantages are more than its limitations hence company form is more suitable.