Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood corner shop selling accessories such as artificial jewellery, bags, hair clips and nail art to a retail chain with three branches in the city. Although she looks after the varied functions in all the branches, she is wondering whether she should form accompany to better manage the business. She also has plans to open branches countrywide.
(a) Explain two benefits of remaining a sole proprietor.
(b) Explain two benefits of converting to a joint-stock company.
(c) What role will her decision to go nationwide play in her choice of a form of the organisation?
(d) What legal formalities will she have to undergo to operate business as a company?
(a) Kiran can enjoy all the profits earned from the business as she is the sole proprietor and would have to share with anyone. She can quickly decide as it enjoys a considerable degree of freedom.
(b) i. Capital can be attracted from the public as well as through loans from banks and financial institutions. Thus there is greater scope for expansion.
ii. A company can afford to pay higher salaries to specialists and professionals. It can, therefore, employ people who are experts in their area of specializations
(c) Her decision to go nationwide would involve an increase in her scale of operation, requirement of capital and management abilities. She will have to bear more risk as she is the sole proprietor and her liability will increase to a large extent.
(d) To operate her business she has to go for certain legal formalities such as compulsory company registration, according to the Indian Companies Act 1956. The Legal formalities would once have to undergo to operate business as a company are –
1. Submission of application in the prescribed form to the Registrar of firms. The application should contain the following particulars:
• Name of the firm
• Location of the firm
• Names of other places where the firm carries on business
• The date when each partner joined the firm
• Names and addresses of the Sole Proprietor
• Duration of partnership
2. Deposit of required fees with the Registrar of Firms.
3. The Registrar after approval will make an entry in the register of firms and will subsequently issue a certificate of registration.