Sole Trader / Sole Proprietorship Lecture Review

25 question-and-answer flashcards covering definition, characteristics, objectives, merits, and demerits of sole trader or sole proprietorship business form.

Who is a sole trader?

A person who carries on business exclusively for himself, acting as both owner and manager and bearing all risks and rewards.

How are ownership and management related in a sole proprietorship?

They are vested in the same person; the sole proprietor both owns and controls the business.

Does a sole proprietorship have a separate legal entity from its owner?

No. The business and the proprietor are legally one and the same.

What type of liability does a sole proprietor have?

Unlimited liability—personal assets can be used to satisfy business debts.

Who shares the profits and losses in a sole proprietorship?

No one; the sole proprietor alone takes all profits and bears all losses.

Which objective of a sole trader business relates to employment creation?

To create self-employment so a person can work for himself.

How does a sole proprietorship help utilise surplus funds?

It allows a person with limited capital to start a small business instead of keeping money idle.

Which objective of a sole trader emphasises independent living?

It enables the proprietor to be his own master and make all decisions, providing an independent and honourable living.

How can a sole trader better serve customers?

Through direct contact, understanding their needs, and locating the business close to them for convenience.

How does sole proprietorship contribute to equitable distribution of wealth?

By dispersing income among many small owners and avoiding concentration of wealth in few hands.

What does it mean that sole proprietorship is a "feeder to large business"?

Small sole-proprietor units supply ancillary services or inputs to larger firms.

Why is formation of a sole proprietorship considered easy?

It requires virtually no legal formalities, permits, or agreements; the owner can start whenever he wishes.

Why does sole proprietorship provide strong motivation to work?

Because the proprietor receives all profits and bears all losses, directly linking effort to reward.

Why are decisions quick in a sole proprietorship?

The proprietor need not consult anyone, enabling on-the-spot decisions and prompt action.

How does a sole trader maintain secrecy of business affairs?

He is not required to publish accounts or share information with outsiders.

What makes operations flexible in a sole proprietorship?

Small size and simple structure allow easy expansion, contraction, or change of business line.

Why is management economical in a sole proprietorship?

The proprietor performs multiple functions without hiring costly specialists.

What level of government regulation applies to sole proprietorship?

Minimal—aside from tax and labour laws, there is little government interference.

Why is dissolution of a sole proprietorship easy?

No specific legal procedures are needed; the owner can cease operations at will.

Give one social-utility benefit of sole proprietorship.

It offers gainful self-employment, fostering self-reliance and diffusing ownership in society.

What is a major limitation regarding capital for a sole proprietor?

Personal funds and borrowing capacity are limited, restricting capital resources.

Why is managerial ability considered limited in a sole proprietorship?

One person rarely has expertise in every business function and cannot devote enough time to all activities.

How does unlimited liability act as a demerit for the sole proprietor?

Fear of personal asset loss can make the proprietor cautious and hinder business growth.

What makes the life of a sole proprietorship uncertain?

Business may stop if the proprietor falls ill, becomes insolvent, or dies because the two are inseparable.

Why is the scope for expansion limited in a sole proprietorship?

Limited financial and managerial resources prevent large-scale operations and deter skilled employees.