Trace the stages by which a small sole proprietorship might develop into a public limited company.

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Commerce

-Radhika Poduval

Sr. 3C

Trace the stages by which a small sole proprietorship might develop into a public limited company.

Stage 1- The sole proprietorship

The small sole proprietor wishes to expand his small business but cannot do so, for the following reasons:

Unlimited Liability

The sole trader is liable for the debts of his business to the full extent of his private  

assets, and may even be forced to sell his or her own home in order to pay off      

creditors

Lack of Continuity

Legally no distinction is made between the owner and the business so there is often a lack of continuity in the event of the owner’s death. The business may have to be sold in order to meet inheritance tax liabilities.

        Difficulty in Raising Capital

Sole traders may initially have to use their own savings and can later expand by ploughing back profits. However, there is a limit to the amount of capital that can be obtained by ploughing back profits. They may have to borrow from a bank, but in times of economic difficulty may have their overdraft facilities withdrawn.  Sole proprietors often have to pay higher interest rates than larger firms do.  Private loans are possible, but advertising to the public for capital is not allowed.

        Competitive Business

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Success demands hard work, long hours and considerable worry, and the sole trader must bear these burdens alone, which does not have to be done in other forms of business.

        Technological Progress

This is often difficult for the sole proprietor as it is often too expensive for such businesses to afford.  However, it is often this progress, which increases efficiency and so, the gap between smaller and larger firms widens and the sole proprietor’s market shrinks as customers patronize the more efficient larger firms where goods and services are cheaper and can be obtained faster.

        Social Security Payments

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