Question

Explain the advantages and the disadvantages of a sole proprietorship and a partnership.

Answer 1

Answer-

The advantages of sole proprietorship are

1) The owner keeps all the profits generated through business
2) The costs incurred to st up business are low.
3) The business is easy to establish and operate
4) The closing of business is easy and does not have legal obligations

The disadvantages of sole proprietorship are

1) The owner has unlimited personal liability. The owner is personally liable for all the debts incurred in the business.
2) It is difficult to raise capital for the business.
3) Business generally ceases after the demise of the owner.
4) The taxes for self employment are  applicable to owners of sole proprietorship.

The advantages of partnership are

1) There are many sources of financing the business like loans as the partners can pledge their assets.
2) The setting up of business is easy unlike corporation
3) The partnership has good access to skills and knowledge along with experience of individuals.
4) The partnership has lesser legal obligations.

The disadvantages of partnership are

1) The partners are liable for all the debts of the business.
2) The liability of partner is for the share of partner along with the liability of others debts.
3)  There can be disagreements between partners and management
4) It will be difficult to value the assets of partnership business when a partner joins or leaves the business.