Limitation of sole proprietorship form of business enterprise
Sole proprietorship form of business enterprise has the following limitations:
The resources of a sole proprietor are always limited. Being the single owner it is not always possible to arrange sufficient funds from his own sources. Again borrowing funds from friends and relatives or from banks has its own implications. So, the proprietor has a limited capacity to raise funds for his business.
Lack of Continuity
The continuity of the business is linked with the life of the proprietor. Illness, death or insolvency of the proprietor can lead to closure of the business. Thus, the continuity of business is uncertain.
There is no separate entity of the business from its owner.In the eyes of law the proprietor and business are one and the same.So personal properties of the owner can also be used to meet the business obligations and debts.
Not Suitable for Large scale Operations
Since the resources and the managerial ability is limited, sole proprietorship form of business enterprise is not suitable for large_scale business.
Limited Managerial Expertise
A sole proprietorship from of business enterprise always suffers from lack of managerial expertise. A single person may not be an expert in all fields like, purchasing, selling, financing etc.Again, because of limited financial resources, and the size of the business it is also not possible to engage the professional managers in sole proprietorship form of business enterprises.
Partnership is an association of two or more persons who pool their financial and managerial resources and agree to carry on a business, and share its profit (Collins, 2007).The person who form a partnership are individually known as partners and collectively enterprise in Nigeria is governed by the Nigeria partnership Act,which defines partnership as ” the relation between persons who have agreed to share the profits of the business carried on by all or any of them acting for all”.
Features of Partnership Form of Business Enterprises
Based on the definition of partnership as given above above, some of the characteristics of partnership form of business enterprise are explained as follows:
Partnership is created by an agreement among the persons who have agreed to join hands. Such persons must be competent to contract. Thus minors,lunatics and insolvent persons are not eligible to become the partners. However, a minor can be admitted to the benefits of partnership firm i.e.,he can have share in the profits without any obligation for losses.
Sharing profits and Business
There must be an agreement among the partners to share the profits and losses of the business of the partnership firm. If twyor more persons share the income of jointly owned property.It is not regarded as partnership.
Existence of Lawful Business
The business of which the persons have agreed to share the profit must be lawful.Any agreement to indulge in smuggling, black marketing etc.cannot be called partnership businesses in the eyes of law.
Principal Agent Relationship
There must be an agency relationship between the partners. Every partner is the principal as well as the agent of firm.When a partner deals with other parties he/she acts as an agent of other partners, and at the same time the other partners become the principal.
The partners of the firm have unlimited liability. They are jointly as well as individually liable for the debts and obligations of the firms. If the assets of the firm are insufficient to meet the firms liabilities, the personal properties of the partners can also be utilized for this purpose. However, the liability of a minor partner is limited to the extent of his share in the profits.
The registration of partnership firm is not compulsory. But an unregistered firm suffers from some limitations which make it virtually compulsory to be registered. Following are the limitations of an unregistered firm.
the firm cannot outsider, although the outsiders can sue it.
in case of any dispute among the partners, its not possible to settle the dispute through court of law.
The firm cannot claim adjustment for amount payable to, or receivable from, any other parties.