Q3. What are demerits of Sole Proprietorship Firm.
- Limited Resources: Resources of Sole Proprietorship are limited to his personal savings and borrowing from others. Banks and other institutions hesitate to extend long term to sole proprietorship.
- Limited Life of Business Concern: In eyes of law, proprietorship and owner are considered one and same. Death or illness of proprietor affects business and lead to its closure.
- Unlimited Liability: A disadvantage of Sole Proprietorship is owner has unlimited liability. If business falls, creditors recovered their dues not from assets; but also from personal assets. A poor decision can create burden on owner.
- Limited Managerial Ability: The owner has various managerial task such as purchasing, selling, financing, etc. Thus, decision making may not be balanced in all cases. Also, due to limited resources, sole proprietor may not be able to employ and retained talented employs. It require less amount of capital. It is bets for small scale business.