Question

Explain the limitations of a sole proprietorship firm.

Explain the demerits of a sole proprietorship firm.

Answer 1

1. Limited capital: The financial resources that are available to a sole proprietor are limited merely to this person’s personal savings and borrowings that can be raised from relatives and friends. Thus, the amount of capital available to a sole proprietor is limited, which often prevents him or her from expanding the business.
2. Limited managerial abilities: A sole proprietor manages all the core functions, such as purchasing, selling, and planning. As a result, the benefits of specialisation are not available to a sole proprietor. Also, because of limited resources, a sole proprietor may be unable to employ specialised employees to handle specific business operations.
3. Uncertain life: In the eyes of the law, a sole proprietor and his or her business are regarded as the same entity. In the event of death, insanity, bankruptcy, or physical ailment of a sole proprietor, the life of the business is adversely affected.
4. Unlimited Liability: The liability of the karta is unlimited. Their private property is liable to pay the cost of the business’s debts.