Commercial Applications
Mention two limitations of sole proprietorship and of joint Hindu family business.
Sole Proprietorship
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Answer
Two limitations of Sole Proprietorship:
Limited Capital — The capital resources are limited to the personal savings and borrowings of the proprietor. Their own assets may be insufficient and borrowing capacity is limited. Therefore, there is limited scope for growth of business.
Unlimited Liability — The proprietor is personally liable for all the debts of the firm. If the business assets are insufficient, their personal property can be used to pay creditors. This reduces their capacity to take risks.
Two limitations of Joint Hindu Family Business:
Limited Capital — The capital of joint Hindu family business is limited to the ancestral property. The family property gets divided on the birth of every member. The business cannot expand and grow due to shortage of capital.
Hasty Decisions — Decisions taken by the karta may sometimes be hasty and unbalanced because they are overburdened with work. There is lack of consultation with other members which may lead to poor decisions.
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The liability of a sole proprietor is limited to the assets of the business.
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