Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?
What will be an ideal response?
Sole proprietorships have many features that are attractive to people starting a new business, including the following: 1. They are relatively easy and inexpensive to set up. 2. The owner can be his or her own boss, which appeals to many entrepreneurs who want to do things their own way, without the need to consult others. 3. The owner can keep all of the profits (except what the government takes in taxes). 4. Proprietors can take a great deal of pride in owning their own independent business and running it as they see fit. 5. The owner's work establishes a legacy on which future generations may build.6. There are no special taxes on proprietorships.However, sole proprietorships also have some disadvantages that limit their growth potential: 1. With only one owner, sole proprietorships have limited access to the financial capital needed by rapidly growing firms. 2. As the firm grows and becomes more complex, the owner may become overwhelmed with the tasks of running the firm and need to attract qualified help. 3. Unfortunately, qualified professional workers are often reluctant to work in a sole proprietorship. 4. One of the biggest drawbacks for sole proprietorships is the unlimited liability of the owner. This means that the owner can lose much more than the amount he or she initially invested in the company (including personal property and savings) if the company gets into severe financial trouble. In this respect, a sole proprietorship is a risky form of ownership. Many growing companies decide to change their form of ownership to a corporation to overcome these drawbacks.
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