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Questions and Answers
What is the primary source of capital for a sole proprietorship?
What is the primary source of capital for a sole proprietorship?
- Investment from external shareholders
- Personal savings and borrowed funds (correct)
- Government grants
- Public stock offerings
What is the key characteristic of the liability of a sole proprietorship?
What is the key characteristic of the liability of a sole proprietorship?
- Unlimited liability, both business and personal assets are at risk (correct)
- Limited liability, only business assets are at risk
- Joint liability, shared with other business partners
- No liability, the owner is not responsible for debts
What is the primary role of a sole proprietor in the business?
What is the primary role of a sole proprietor in the business?
- Investor and shareholder only
- Manager, labourer, capitalist, and entrepreneur (correct)
- Capitalist and entrepreneur only
- Manager and labourer only
What is the legal status of a sole proprietorship?
What is the legal status of a sole proprietorship?
What is the typical industry where sole proprietorships are commonly found?
What is the typical industry where sole proprietorships are commonly found?
What is the primary motive of a sole trader in business?
What is the primary motive of a sole trader in business?
What is a characteristic of a sole trader's method of withdrawing capital?
What is a characteristic of a sole trader's method of withdrawing capital?
Why does a sole trader not need a board of directors?
Why does a sole trader not need a board of directors?
What is an advantage of a sole proprietorship in terms of its establishment?
What is an advantage of a sole proprietorship in terms of its establishment?
What is a benefit of a sole proprietor's ability to make quick decisions?
What is a benefit of a sole proprietor's ability to make quick decisions?
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Study Notes
Definition and Characteristics of a Sole Proprietorship
- A sole proprietor is an individual who owns and manages a business, using their own capital and labor, and receives all the profit or loss.
- Also known as a "one-man business" or "sole trader".
Features of a Sole Proprietorship
- Ownership: Owned by one person.
- Liability: Unlimited liability, meaning both business and personal assets can be sold to offset debt.
- Sources of Capital or Finance: Owner provides capital through personal savings, intended capital, credit, borrowing from relatives, banks, etc.
- Legal Entity: Not a legal entity; business and owner are regarded as one person.
- Motive: Primary motive is to make a profit.
- Method of Withdrawing Capital: Owner can withdraw capital anytime without consulting anyone.
- No Board of Directors: Owner makes all decisions.
Sources of Funds for a Sole Trader
- Personal savings
- Borrowing from friends and relatives
- Credit purchases from manufacturers or wholesalers
- Donations from friends and relatives
Advantages of a Sole Proprietorship
- Low Capital Requirement: Can be established quickly and easily with small capital.
- Easy to Establish: No formalities or legal processes required.
- Ownership of All Profit: Sole proprietor retains all profit.
- Quick Decision-Making: Owner can take quick decisions without consulting anyone.
- Easy to Withdraw Assets: Business can be liquidated easily.
- Formulates All Policies Alone: Owner determines business policies and goals.
- Independence and Personal Freedom: Owner has complete control over business decisions.
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