Disadvantages of Sole Proprietorships

Unlimited Liability Unlimited liability is a legal concept that holds a sole proprietor personally responsible for all the debts of his or her business. This means there is no legal difference between the debts of the business and the debts of the proprietor. If the business fails, the owner's personal property—including house, savings, and other assets—can be seized (and sold if necessary) to pay creditors.

Unlimited liability is thus the other side of the owner-keeps-the-profits coin. It is perhaps the major factor that tends to discourage would-be entrepreneurs from using this form of business organization.

Lack of Continuity Legally, the sole proprietor isthe business. If the owner dies or is declared legally incompetent, the business essentially ceases to exist. In many cases, however, the owner's heirs take over the business and continue to operate it, especially if it is a profitable enterprise.

Limited Ability to Borrow Banks and other lenders are usually unwilling to lend large sums to sole proprietorships. Only one person—the sole proprietor—can be held responsible for repaying such loans, and the assets of most sole proprietors are fairly limited. Moreover, these assets may already have been used as the basis for personal borrowing (a mortgage loan or car loan) or for short-term credit from suppliers. Lenders also worry about the lack of continuity of sole proprietorships: Who will repay a loan if the sole proprietor is incapacitated?

The limited ability to borrow can keep a sole proprietorship from growing. It is the main reason why many business owners change from the sole proprietorship to some other ownership form when they need relatively large amounts of capital.

Limited Business Skills and Knowledge Managers perform a variety of functions (including planning, organizing, and controlling) in such areas as finance, marketing, human resources management, and operations. Often the sole proprietor is also the sole manager—in addition to being a salesperson, buyer, accountant, and, on occasion, janitor.

Even the most experienced business owner is unlikely to have expertise in all these areas. Consequently, the business can suffer in the areas in which the owner is less knowledgeable, unless he or she obtains the necessary expertise by hiring assistants or consultants.

Lack of Opportunity for Employees The sole proprietor may find it hard to attract and keep competent help. Potential employees may feel that there is no room for advancement in a firm whose owner assumes all managerial responsibilities. And when those who arehired are ready to take on added responsibility, they may find that the only way to do so is to quit the sole proprietorship and either work for a larger firm or start up their own business.

 

I. VOCABULARY PRACTICE

A) Find in the text the words that are synonyms of:

1. very small 6. to lure

2. lawyer 7. to change from sth to sth

3. proprietor 8. to stop

4. promotion 9. very important, essential

5. stimulus 10. responsibility

 

B) Match the words on the left with their definitions on the right:

1. contract	a) the ability to change very quickly in order to suit new conditions
2. license	b) money that is lent to sb by a bank or another financial organization
3. tax on sth	c) a person who helps or supports sb in their work
4. start-up fee	d) money that you have saved, especially in a bank
5. flexibility	e) an official written agreement between two parties
6. business hours	f) money that you pay in order to set up a new business
7. dissolution	g) the profit that a company makes
8. heir	h) an official document that shows that permission has been given to do, own or use sth
9. assistant	i) the act of officially ending a business
10. savings	j) the hours in a day that a shop or company is open
11. loan	k) money that you have to pay to the government
12. earnings	l) a person who has the legal right to receive sb’s property and continue the work after their death

 

C) Find in the text the English equivalents for the following phrases of words:

1. atelierul pentru reparaţia televizoarelor/мастерская по ремонту телевизоров

2. a lua decizii/принимать решения

3. a cere aprobarea managerului/спрашивать разрешения менеджера

4. a achita un împrumut/выплатить заём

5. a reacţiona la schimbările în condiţiile de piaţă/реагировать на изменения в рыночных условиях

6. viitor antreprenor/будущий предприниматель

7. un credit pe termen scurt/краткосрочный кредит

8. magazin de electrocasnice/магазин бытовой техники

9. a se folosi de informaţia/воспользоваться информацией

10. a-şi asuma răspunderea adăugătoare /взять на себя дополнительную ответственность

 

II. COMPREHENSION

A) What do these numbers in the text refer to?

3; 1; 2/3; 12; 2; 5.

 

B) Choose the item that best completes each sentence:

1. Most United States businesses are

a) corporations

b) partnerships

c) sole proprietorships

2. Unlimited liability means that the owner

a) has unlimited ability to borrow

b) must be liable for his/her company debts

c) cannot be held responsible for his/her company debts

3. All the following are advantages of a sole proprietorship EXCEPT

a) the owner is only answerable to himself/herself

b) there is no requirement to submit profit accounts

c) the possibility to have competent employees

4. If a sum of money was lent to a sole proprietorship, the responsibility to repay the loan is assumed

a) by the owner himself/herself

b) by the owner’s family members

c) by the owner’s staff

5. The major factor that discourages from starting up a sole proprietorship is

a) limited ability to borrow

b) unlimited liability

c) limited business knowledge

6. Employees don’t want to work for a single owner because

a) they are given too many responsibilities

b) they are not paid as they deserve

c) they don’t have the chance to be promoted.

 

III. Fill in the gaps with the appropriate words whose parts of speech are given in brackets in order to facilitate your task:

1. There are _________ advantages of sole proprietorships. (Numeral)

2. It is _________ and relatively _________ to start and end such form of business. (Adjectives)

3. All the ___________ go to the owner of business. (Noun)

4. The sole proprietor is free _____________ ______________ about everything what refers to his/her firm. (Verb + noun)

5. The sole proprietor pays __________ the tax on his personal income. (Adverb)

6. The single owner is sure that competitors ____________ nothing about his/her business plans, profits or other vital facts. (Verb)