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Question

Explain the limitations of a sole proprietorship.


Solution

The limitations of a sole proprietorship are as follows:-
1. Limited financial resources:- In sole proprietorship firm, finance is supplied by the proprietor himself from his wealth or from borrowings. Usually, there is a limit to the credit raising capacity of a single person.
2. Limited managerial ability:- The survival and continuity of sole proprietorship firm depends upon one person only. If the proprietor dies or becomes insolvent then the business may come to an end.
3. Unlimited liability:- The sole proprietor is personally liable for all the debts. In case of heavy losses, the proprietor will not only lose all his business assets but he may have to sell his personal property to pay back his debts.
4. Limited Managerial Skill:- In sole proprietorship firm, all the activities are performed by a single individual. A single individual might not be well-versed with all the aspects of business.

Business Environment, Ethics and Management

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