Question

What is Sole Proprietorship? Identify and discuss two advantages and two disadvantages.

Answer 1

A sole proprietorship is considered to be one of the simplest forms of business in which a single person is the owner of the business and responsible for all the actions of the business.

Advantages are:

(1) The owner has full control over the business and needs no approval from anyone to make a crucial decision. thus, it can save time from red-tapism and allow the business to capture the fleeting opportunities quickly.

(2) The owner is the sole beneficiary of the profits and thus the profits are directly proportional to the amount of effort he/she exerts into the business that leads to maximum efforts.

Disadvantages are:

(1) The single owner may lack the necessary skills and talent to make correct decisions as decision making is usually better with more minds

(2) The business is usually small and can not take advantage of the economies of scale like the bigger businesses.