a. Differentiate between a sole proprietorship and a partnership
b. List four characteristics of a sole proprietorship
c. Outline four advantages of a public limited liability company.
Explanation
a. A sole proprietorship is a business model where an individual is an owner as well as the operator of the business whereas a partnership is a business organization where two or more persons agree to carry on business and share profits and losses equally.
b.
- sole owner of the business
- unlimited liability
- no legal entity
- sole decision maker
- main objective is to make profit
c.
- legal entity: Public limited liability companies have legal existence. They have a distinct personality from the owners, hence they can be sue and be sued in their own name.
- Large capital: They can raise enough capital by selling more shares or debentures to the public.
- Loan facilities: Many banks prefer to grant loans to public limited companies than other forms of business units because there is no likelihood of default in payment.
- Spreading risks of ownership: Public limited company allows for public and unlimited membership, the risk of ownership is then spread amongst many people as opposed to being centered on a few as in the case of a private limited company.