Ram and Shyam are good friends and have completed their graduation from same university. Ram is having degree in the field of commerce and Shyam is having degree in the field of science. Ram arranged a trip from Varanasi to Darjeeling during summer vacation. During journey from train Shyam expressed his desire to join Indian Navy but Ram is looking to set up a business and required investment is made by him personally, he want to manage the business and also ready to bear future loss by himself." In the light of above paragraph 1 that lists the
(a) Identify the form of business organization which Ram want to establish. (b) Explain two merits and two demerits of above identified form of business.
(a) Identify the form of business organization which Ram want to establish. (b) Explain two merits and two demerits of above identified form of business.
Answers & Comments
Answer:
(a) The form of business organization that Ram wants to establish is a sole proprietorship. This is a business owned and run by one person, who provides all the capital and bears all the risks.
(b) Two merits of a sole proprietorship are:
It is easy to set up and operate, as there are no legal formalities or partners involved.
It gives the owner full autonomy and decision-making power over the business.
Two demerits of a sole proprietorship are:
It has limited resources and scope for expansion, as the owner depends on his own funds and skills.
It has unlimited liability, which means the owner is personally responsible for all the debts and losses of the business.