Prerna 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, for better management of the business she is thinking to convert her sole proprietorship into some other form of business. She also has plans to open branches countrywide. However, she is afraid of the fact that in case the business incurs losses, her personal property may be called upon to pay the business debts. She is also feeling that she may not be able to effectively manage a large business because of her deteriorating health.
(a) Identify and explain the features of sole proprietor business highlighted in the above case. (b) Also suggest to her the form of business organisation which will help her in continuing her business, stating reason in support of your answer.

Question

Prerna 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, for better management of the business she is thinking to convert her sole proprietorship into some other form of business. She also has plans to open branches countrywide. However, she is afraid of the fact that in case the business incurs losses, her personal property may be called upon to pay the business debts. She is also feeling that she may not be able to effectively manage a large business because of her deteriorating health.

(a) Identify and explain the features of sole proprietor business highlighted in the above case. (b) Also suggest to her the form of business organisation which will help her in continuing her business, stating reason in support of your answer.

Accepted Answer

Features of sole proprietorship: 1. Unlimited liability: The proprietor is liable for all losses. If business assets are insufficient, personal property can be used. 2. Individual management and control: All affairs are managed by the sole proprietor.

3. Individual ownership: The business is exclusively owned by a single person. Prerna should convert to a Company (Joint Stock Company) or Private Company. Benefits: 1. Limited liability - liability of shareholders is limited to shares held.

2. Perpetual succession - death of a member doesn't affect company's existence.

3. Diffusion of ownership and management - can hire professional managers.

4. Access to large capital for expansion.