Page 117 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Entrepreneurship and Small Business Management

Notes 4. The significance of the material index is in calculating precisely the difference between the
unit transport costs of raw materials and finished products.
5. A plant location is needed when a new branch or branches are to be opened for decreasing
the volume of production or distribution or both.
6. If the product is a pure material its index will be 10.
7. The weight gain is most likely to come from the addition of ubiquitous materials.

8. Transport costs are not identical for raw material and manufactured goods.

8.2 Selection of the Type of Organisation

There are a number of organizations that a new entrepreneur may select to meet his requirements,
ambitions, tastes and designs. He may go for (1) Sole proprietorship, (2) Joint partnership,
(3) Limited Liability Company (4) Corporation

8.2.1 Selecting a Business Entity: Sole Proprietorship

A sole proprietorship is both the simplest and the most prevalent form of business organization.
An important reason for this is that it is the least regulated of all types of business structures.
Technically, the sole proprietorship is the traditional unincorporated one-person business. For
legal and tax purposes, the business is the owner. It has no existence outside the owner. The
liabilities of the business are personal to the owner and the business ends when the owner dies.
On the other hand, all of the profits are also personal to the owner and the sole owner has full
control of the business.

Advantages

Following are the advantages of sole proprietorship form of business:
1. Total Control of the Owner: The most appealing advantage of the sole proprietorship as
a business structure is the total control the owner has over the business. Subject only to
economic considerations and certain legal restrictions, there is total freedom to operate
the business however one chooses. Many people feel that this factor alone is enough to
overcome the inherent disadvantages in this form of business.

2. Simplicity of Organisation: Related to this is the simplicity of organization of the sole
proprietorship. Other than maintenance of sufficient records for tax purposes, there are no
legal requirements on how the business is operated.
3. Least Regulated of all Business: As was mentioned earlier, the sole proprietorship is the
least regulated of all businesses.

Notes The only license necessary for a sole proprietorship is a local business license,
usually obtained by simply paying a fee to a local registration authority.

4. Registration with Local Bodies: Finally, it may be necessary to register with local, state,
and federal tax bodies for I.D. numbers and for the purpose of collection of sales and other
taxes. Other than these few simple registrations, from a legal standpoint little else is
required to start up a business as a sole proprietorship.

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