Forms of Business Organisation-1 — OCM STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceOCMForms of Business Organisation-15 Marks
Question
Explain Limitations (disadvantages) of Sole Proprietorship.
✓
Answer
Introduction :
In sole proprietorship form only one person is the owner of business.
He enjoys special advantages. But this form has its own limitations, which has given birth to emergence of partnership firms.
So, it is necessary to study its limitations.
Limitations of Sole Proprietorship : are as under :
$(1)$ Limited Capital :
Establishment of business with limited capital is its first and foremost advantage.
But owner of sole proprietorship can collect limited capital on the basis of his voluntary savings and credit reputation.
This form is not advisable and suitable for large scake business.
Large scale purchases, purchase of big machinery, hoarding of stock in large quantity is not possible in this form of business.
Unlimited Responsibility :
In Sole Proprietary form responsibility of the owner is unlimited.
To pay the debt of business, sometimes he has to sell his personal property too.
Due to this sometimes business opportunities are seem profitable yet looking to the risk involved one has to avoid it.
Short Life :
Compare to other forms of business sole proprietor form has short life.
Business comes to end if the successors are not competent and bad situation like death of the owner, insanity, bankruptcy of the owner etc. take place.
This happens because there is only one owner.
Limited working capacity :
As there is only one owner in this form, its capital and Scope are limited.
It is not possible that the owner has knowledge of all business related matters.
He may not be an expert in all matters.
This is an obstacle for the development of business.
Faulty Decisions :
In sole proprietorship firm the owner is decision-maker and decision taker.
Sometimes decisions are taken without having done deep thinking.
No discussion is possible.
Org. of Comm. & Management
Decisions are taken faulty and hasty, may be immature.
Decisions are taken from one’s own viewpoint. Such decisions sometimes are proved hasty and faulty.
Unfavorable for large size Business :
Sole proprietorship business has its limitations of capital and scope.
This form is not suitable for large scale business.
Advantages of large scale purchase and sale are not avail in this form.
Its working capacity is limited.
Limited Scope :
The scope and working capacity of sole proprietorship form of business is limited.
Due to limited capital.
Business is not expanded to other cities and states.
He runs his business only in local area.
Conclusion :
Sole proprietorship form has above mentioned limitations but it has played an important role in creating employment for others and self-employment.
It fulfills the needs of local people.
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