Sole Proprietorship

1 . Medium of Finance Chosen by Don Jones

The medium of finance selected by Don Jones , sole proprietorship is the simplest form of enterprise . Indeed entrepreneurs normally commence a business activity through such form due to its simplicity . It is simple to incorporate and to manage since everything is in the hands of the one owner present . This can be regarded as an important benefit since the owner will hold liberty and flexibility in managing the business enterprise in line with his pace . However , we cannot easily contend that a sole proprietorship

is the best form of enterprise available Even though it is the most common type both in the United States and Europe , it too holds certain limitations . For instance due to one owner , there knowledge of management will be limited only to such person . In to attain proficient opinions , he is requested to employ consultants , which are considerably expensive

Sole proprietorship is also desirable due to its limit administrative costs incurred in its incorporation . In addition , the financial reporting requirements necessary for such mode of enterprise are relatively simple ranging from a tax return to a simple set of final accounts . The government also offers a tax advantage to sole proprietorship . They hold the capability of offsetting losses incurred in the business with other income generated from other activities in the tax return

The main limitation of a sole proprietorship , which frequently induces entrepreneurs to shift to another medium of finance , is the lack of capital present in such form . Since there is only one owner , the monetary value of capital invested in the company will be limited to only one person . In addition , banks and other external providers of finance will be reluctant to provide finance to organizations that hold a limited asset base partly stemming from such limited capital . This will hinder the firm in growth strategies it may foresee . As outlined in the law , it is also important to note that the owner of a sole proprietorship holds an unlimited liability towards all the debts present in the firm . His private property is therefore at risk to be taken as a part payment of the liability in case of bankruptcy . In light of the disadvantages noted above , it is important that Don Jones considers the alternative forms of enterprise before deciding on the optimal form

Alternative forms of business enterprise

The two main alternative forms of business enterprise available are a partnership and a limited company . In this section we shall consider these forms together with their inherent advantages and limitations

1 .1 .1 Partnership

A partnership is very similar to a sole proprietorship with the exception that the owners of the business enterprise are more than one usually not exceeding twenty . The formation of the firm is a little more complex , encompassing the preparation of a partnership deed . This document entails matters concerning the partners , such as capital invested by each partner , share of profit and losses , interest on capital and drawings if...