Risk and Benefits: Entrep mod 1

Question 1

Sole Traders
Advantages

Answer 1

• Easy and Inexpensive to Form: Starting a sole proprietorship is relatively easy and straightforward. There are fewer legal formalities and paperwork compared to other business structures.
• Direct Decision-Making: The sole trader has complete control over
  all business decisions. This allows for quick decision-making and
  implementation of strategies.
• Retention of Profits: All profits generated by the business belong to
  the sole trader. There are no shareholders or partners with whom to
  share the earnings.
• Flexibility: Sole traders have the flexibility to adapt to market changes, customer preferences, and business needs without the need for extensive consultation.
• Tax Benefits: In many jurisdictions, sole traders enjoy tax advantages. They report business income on their personal tax returns, and there may be opportunities for deductions and credits.

Question 2

Sole Traders
Disadvantages

Answer 2

• Limited Resources: Sole traders may have limited access to capital compared to larger corporations. Raising significant funds can be challenging.

• Limited Specialization: The owner may have to handle various aspects of the business, which can be overwhelming, especially if they lack expertise in certain areas.

• Risk of Burnout: Sole traders often take on multiple roles, which can lead to overwork and burnout, potentially affecting the sustainability of the business.

• Difficulty in Scaling: Sole proprietorships may face challenges when trying to grow or expand the business, as it relies heavily on the owner’s personal capacity.

• Succession Planning: If the owner decides to retire or leave the business, there may be challenges in finding a suitable successor, potentially leading to the closure of the venture.

• Limited Networking Opportunities: Sole traders may have fewer opportunities for networking and collaboration compared to businesses with multiple partners or stakeholders.

• Lack of Formal Structure: The absence of formal structures and processes may lead to difficulties in organization and management, particularly as the business grows.

Question 3

Sole Traders
Creation and Acquisition of the Venture:

Answer 3

• Selection: Sole traders have complete freedom in choosing the type of business they want to operate, based on their skills, interests, and market opportunities.

• Cost: Setting up a sole proprietorship is usually less costly than establishing other business structures like corporations. There are fewer administrative and legal expenses.

• Complexity/Organization: The organizational structure is relatively simple, with the owner being responsible for all aspects of the business. There are no complex hierarchies or formalities.

• Personal Liability: The owner has unlimited personal liability, meaning their personal assets are at risk if the business incurs debts or liabilities.

• Need for Start-up Funding: Sole traders may find it easier to start with limited capital, as they can use their personal savings or obtain small loans without the need for external investors.

• Extent of Ownership/Management: The sole trader has full ownership and control over the business. There are no partners or shareholders with whom to share decision-making.

• Distribution of Profit/Loss: The owner retains all profits but also bears the full responsibility for any losses incurred by the business.

• Extent of Government Regulation/Tax Considerations/Implications: Sole traders may face fewer regulatory requirements compared to larger corporations. However, they must comply with local business licenses and tax regulations.