10 Questions
What is the primary source of capital for a sole proprietorship?
Personal savings and borrowed funds
What is the key characteristic of the liability of a sole proprietorship?
Unlimited liability, both business and personal assets are at risk
What is the primary role of a sole proprietor in the business?
Manager, labourer, capitalist, and entrepreneur
What is the legal status of a sole proprietorship?
Not a legal entity, regarded as one person with the owner
What is the typical industry where sole proprietorships are commonly found?
Retailing business
What is the primary motive of a sole trader in business?
To make a profit
What is a characteristic of a sole trader's method of withdrawing capital?
Can be done anytime without consulting anyone
Why does a sole trader not need a board of directors?
Because they are the sole owner
What is an advantage of a sole proprietorship in terms of its establishment?
It can be established quickly and easily
What is a benefit of a sole proprietor's ability to make quick decisions?
It allows for flexibility in response to changing circumstances
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.
This quiz covers the basics of a sole proprietorship, a business owned and managed by one person, including its characteristics and types of industries where it is commonly found.
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