BUSINESS OWNERSHIP

SOLE PROPRIETORSHIP

S proprietorship/individual proprietorship/sole trader is a form of business org in which an individual introduces his, capital, skills in mgt of its affairs,assumes all the risks of business and is solely responsible for the result of its operations.

Characteristics of Sole Proprietorship

Ownership;is by one person Management;owner is the active manager.He may delegate some of the powers to his trusted employees but he retains overall control. Finance;capital provided by owner.If additional funds are required , the capital can be increased by borrowing. Size of business unit;usually small, though not necessarily Risk;owner assumes all risks. Unlimited liabilty.In the event of insolvency of the business, owner will be responsible for making the deficiency from his personal wealth. Entity;the business is not separated legal entity from the owner Continuity;The continuity of the firm is based on good health of the owner Profit;the owner retains all profit.

Advantages of sole proprietorship

Simplicity of formation;all one needs is a busines idea, set the goals and develop the idea into a profitable operation. Sole Authority;proprietor solely takes responsibility for management functions;planning, organizing, staffing, coordinating , controlling and directing the business. Sole claim on profit;owner enjoys profit alone Flexible Management;since owner has full authority, he can make prompt decisions with regards to policies,changing methods of production, delegating responsibilities etc. Minimum legal Restrictions;its easy to form and run as minimum legal restrictions are imposedon it.A government gives preferential treatment in the establishment of small enterprises ie no charter, partnership agreement, special reports to the state are required. Secrecy;a sole trader being the organizer himself, mantains a high standard of secrecy of profits, special production technique, special formula etc. Social benefits;its beneficial to the society in that it makes the owner financially independent who becomes an asset and not burden to society.Also help individuals to develop virtues like initiative, strong will, independent thinking etc.Finally it help the society in wealth distribution.

Disadvantages of sole proprietor

Unlimited liability;If a firm suffers losses and the assets of the business are not sufficient to cover claims against the business, the personal property of the proprietor can be sold under the court order to satisfy the claimants. Difficulty of Expansion;Most of the capital invested comes from the personal savings of the owner.Most financial institutions are reluctant to advance long term loans to owners of sole proprietorship. Limited Managerial Ability;Most traders do not posses all the management skills required for financing, marketing,purchasing, producing and supervising the business.Some may may be production minded, but lacks ability to sell the product.This limits the expansion ability of the business. Lack of Continuity;If sole trader dies, falls sick, get imprisoned, is disabled and there is no suitable sucessor, the business may be closed, sold or liquidated.

PARTNERSHIPS
Defined as a relationship between persons carrying on a business in common with a view of profit The liablity of the individual partner is unlimited unless the partnership agreement provides for any limitation. A partnership consists of not more than 20 persons except in certain cases eg practising solicitors, professinal accountants. In Kenya, all partnerships are formed in accordance with Partnership Act 1934(Chap 29).The name of partnership must be registered first under the Registration of Business Names Act.The formation of a partnership is not very complicated.

Features of Parnership

Capital is contributed by the partners and no appeal is made the public to subscribe. Partnership has a limited life it may be ended any time by the death, withdrawal, bankruptcy or incapacity of any member of the firm. Each partner acts as an agent of the firm with authority to enter into contracts. Each partner is personally responsible for all debts of the firm i.e. they have unlimited liability. Responsibility, profits and losses are shared on an agreed basis.

Advantages of partnership

Simplicity of formation. There are no complicated legal formalities involved in the establishment of partnership. The partners enter into a partnership agreement, get the firm registered and start business. Large capital. Partnership can bring more capital to the business by the joint efforts of the partners.. Additionally partnership is in a strong position to borrow long term capital loans and expand the business. Greater management ability. The firm can distribute the duties and responsibility of each partner for which one is best qualified and suited. This specialization promotes efficiency of the firm. Prompt decisions. The partners meet frequently they can take prompt decisions about the business. Secrecy. The firm is not required by law to publish the profit and loss account and balance sheet. Ease of dissolution. The partnership can also be legally dissolved without much difficulty by mutual consent of the partners or in accordance with the contract.

Disadvantages of partnership

Unlimited liability. Like sole proprietorship if the business suffers losses and the business assets are not sufficient to satisfy the claimants the personal property of one or more than one partners can be soled to clear the debt. Limited life of the firm. If any partner dies, injured, withdraws, sells his interest or a new partner is admitted into the business the old partnership may come to an end. There many possibilities of the dissolution of the firm due to internal differences. Frozen investment. It is easy for a partner to invest money but it is most difficult to withdraw the funds from the business. A person who wishes to withdraw investment has to consult his partners, find a substitute with equal business ability. Lack of enough legal rules. The partnership has not been able to take large scale businesses due to ineffective legal rules and regulations. Lack of permanence. Partnership is a for of organization which is least permanent. The death, dispute or withdrawal of a partner make its life uncertain.