It is often said that a small business has unlimited liability because it is a sole...
It is often said that a small business has unlimited liability because it is a sole proprietorship even if the owner incorporates. Explain why you agree or disagree with this statement. Be sure to provide support for your statements.
If any sources are used please provide citation. Thank You
Small Business Finance Course!
Homework Answers
In general small business units were establishes by a single individual, named as sole trader or sole proprietorship. It is true it carries some characteristics like:
- Easy to establish/setup
- Access to unlimited liability
- Fully controlling power etc.
Hence, it carries 'unlimited liability characteristic' even if the owner failed to pay debts or bills, the bankers or creditors can come and take the personal assets of the owner.
For example: I established an ice cream parlor as a Sole Trader firm, and I purchased material like Milk, Sugar, Cheese etc on credit base. If I fail to repay to the creditors, they can attach my personal assets, which were listed on my name (like car, land papers, shares, other investments) can take.
Source: 1. Storey D, Six steps to heaven: Evaluating the impact of public policies to support small businesses in developed economies (2017)., Wiley Publications.
2. Huang X and Brown. A, An analysis and classification of problems in small business (1999), International small business.
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