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Merits and Demerits of Sole Proprietorships and Partnerships

By Edited Nov 13, 2013 0 0

For business people it is important to know forms and units, their advantages and disadvantages.


Sole proprietorship
This is a form of business which can be run by one person. It is the smallest form of business and requires few legal procedures to start. The capital to start is also small.


Advantages
It is easy to start and run since it requires small capital. It is a convenient form of business for people with less capital and who cannot start big business enterprise.
It is also very easy to manage since there is close supervision by the owner. The profit made cannot be shared since it is run and owned by one person.


Disadvantages
There is unlimited liability between the business and the sole proprietor. The person may use the business’ money to solve his financial problems. Also the income is taxable according to the profit that you make. If you make high profit, you will have to pay high tax. To raise capital on your own can be a problem.  Often, this business cannot be given loan from the financial institution hence it becomes difficult for the it to expand.


Partnership
It is a form of business between two or more people.


Advantages
It is easy to start partnership since the capital can be contributed by the partners.it also has a few legal procedures to start a partnership business. In the partnership, the profit is shared equally among the partners. This type of business makes a lot of profit compared to the sole proprietorship. It also has tax advantage compared to the sole proprietorship.


Disadvantages
 Some partners may be lazy and not willing to work. This will give you hard time since you may be forced to overwork for the benefit.


Unlimited liability
In partnerships  there is unlimited liability between the family issues. The partners may use the money from to solve their financial problems. This may make the business to close.


 Risk of bad debts
Since there is close contact between the seller and the buyer, the business is at risk of getting bad. It is important to know how you can avoid bad debts.


In the partnership you are not responsible for the financial in it since you have to agree before coming up with a decision.

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