Forms of business

Sole proprietorship: This is a type of business owned and managed by one person called a sole proprietor.

Capital for a sole proprietorship can be raised from:

  1. Borrowing from friends, relatives or financial institutions.
  2. Inheritance.
  3. Donations
  4. Credit buying or hire purchase
  5. Profits ploughed back
  6. Leasing and renting out property.
  7. Personal savings


  1. It is owned and managed by one person
  2. The owner of the business provides all the capital required and is responsible for all the debts of the business
  3. The owner may or may not employ some people to assist in operations of the business
  4. The law does not distinguish the owner of the business from the business.
  5. The owner has unlimited liability .therefore, if the business owes debts which it is unable to pay, the owner of the business will be required to pay the debt from personal sources. Personal property may have to be sold to pay the debts.
  6. All the profits of the business belong to the owner.
  7. All business decisions are made by the owner, who does not have to consult with any one else.
  8. When the business makes losses, the owner bears them all. This means losing part or all of the capital infested in the business
  9. Most sole proprietorships tend to stay small in size due to limited capital business resources.

The following are some of the advantages of sole proprietorship:

  1. Few legal requirements to start.
  2. Decision making and implementation is fast.
  3. The owner exercises direct personal control.
  4. The trader has close and personal contact with customers.
  5. Trader is accountable to him/herself
  6. The trader can maintain top secrets of the business.
  7. The owner enjoys all the profits alone.
  8. Can get assistance from family members.
  9. Capital required to start and sustain the business is relatively small.

Some of the disadvantages of the sole proprietorship are as follows:

  1. Has unlimited liability
  2. Limited amount of capital
  3. The proprietor work for long hours with little time for recreation.
  4. The business may experience management difficulties if the owner falls sick.
  5. May not benefit from economies of large scale operations
  6. Death of the owner may lead to dissolution of the business.
  7. May perform poorly due to lack of specialization.

Dissolution of a sole proprietorship
Dissolution means termination of a business. For a sole proprietorship, thus may arise as a result of:

  1. Decision by the owner to dissolve the business
  2. Death, insanity or bankruptcy of the owner.
  3. If the business is involved in unlawful practices.
  4. Court order.
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