Question

Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood corner shop selling accessories such as artificial jewellery, bags, hair clips and nail art to a retail chain with three branches in the city. Although she looks after the varied functions in all the branches, she is wondering whether she should form a company to better manage the business. She also has plans to open branches countrywide.

(a) Explain two benefits of remaining a sole proprietor
(b) Explain two benefits of converting to a joint stock company
(c) What role will her decision to go nationwide play in her choice of form of the organisation?
(d) What legal formalities will she have to undergo to operate business as a company?

Answer 1

(a) The following are two of the benefits of sole proprietorship.

i. A sole proprietor is the single recipient of all the profits of the business.
ii. A sole proprietor takes all business decisions independently and enjoys complete control over the business.

(b) The following are two benefits of converting to a joint stock company.

i. In a joint stock company capital can be easily expanded by issuing fresh, new shares.
ii. The liability of the owners is limited to the amount of capital invested by them.

(c) If she plans to go nationwide then converting to a joint stock company would be more appropriate as it will lead to large scale business operations.

(d) Some of the legal formalities to be completed for operating a joint stock company are as follows.
i. Promotion of the company
ii. Submitting documents such as Memorandum of Association, Articles of Association, statutory declaration and agreement
iii. Getting the certificate of incorporation
iv. Getting the certificate of commencement of business