Ewa, the owner of Face-2-Face Enterprises, is a sole proprietor. What are the chief characteristics, advantages, and disadvantages of this form of business organization? Ewa wants to obtain additional capital to expand Face-2-Face, but she does not want to lose control of the firm. As a sole proprietor, what is her best option to attain these goals?

Answer 1

A sole proprietorship is the simplest form of business organization. In a sole proprietorship, the owner and the business are the same. Anyone who creates a business without designating a specific form for its organization is doing business as a sole proprietorship. An advantage of the sole proprietorship is its greater flexibility over other forms of business organization. The owner makes all of the decisions and can operate the enterprise without any formalities. A significant disadvantage of this form of organization, however, is that unlike most other forms of business organization, there are no limits on the liability of the owner for the debts and obligations of the firm. Another disadvantage of the sole proprietorship form of doing business is indicated by Ewa's dilemma in this questions. The ability of a sole proprietor to raise capital while maintaining control, and retaining the same form, is limited chiefly to borrowing funds. Bringing in partners would convert the business to a partnership. Issuing stock would require incorporating or establishing another form of business. Selling the business would sacrifice all control. The only way to obtain additional business capital without accumulating it through business profit is by borrowing funds.