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Difficulty: MediumSole Proprietorship: Features, Capital Sources, Merits, and Demerits

Emeka operates an electronics repair shop in Port Harcourt as a sole proprietor. Which of the following features represents a major operational advantage of his business structure compared to an incorporated enterprise?

  1. Absolute privacy of business operations because he is under no statutory obligation to publish annual financial statementsAnswer
  2. B
    Perpetual succession ensuring uninterrupted existence if the founder passes away
  3. C
    Limited liability shielding personal assets from business creditors during bankruptcy
  4. D
    Capacity to raise substantial long-term capital by issuing equity shares

Answer

Absolute privacy of business operations because he is under no statutory obligation to publish annual financial statements
Sole proprietorships are not separate legal entities from their owners and are not bound by statutory rules to publish financial records. This gives the owner complete confidentiality over business operations and financial performance.

Step-by-Step Solution

1
Identify the key characteristics and merits of a sole proprietorship.
Sole proprietorships are unincorporated business units owned and managed by a single individual.
Understanding legal and operational features distinguishes sole traders from incorporated companies.
2
Evaluate the financial reporting requirements of a sole trader versus incorporated companies.
Unlike public limited companies, sole proprietors do not submit audited accounts to public registries or publish them for public inspection.
This guarantees complete business secrecy regarding profits, operational methods, and overall financial standing.

Key Concept

Features and Merits of Sole Proprietorship (Business Secrecy)
Estimated Time:1m 0s
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Topics

Sole Proprietorship: Features, Capital Sources, Merits, and Demerits

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