WAEC Economics 2023 Theory — Question 5

Model answer

(b) Characteristics of a sole proprietorship: (i) It is set up by a single person who bears all risks. (ii) Capital is provided by only the owner, either from personal savings, inheritance, etc. (iii) He enjoys all the profits since he provides the capital alone. (iv) He manages and controls the business alone. (v) It is not a legal entity because the business is not separate from the owner. (vi) His death or incapacitation may lead to a collapse of the business. (vii) He has unlimited liability, since losses could extend to his private property. (c) Advantages of a public limited liability company: (i) It can raise large capital through the sale of shares. (ii) It enjoys economies of scale because it can easily expand output or its size of operation. (iii) It can sue and be sued because it is a legal entity. (iv) There is continuous existence — if a member withdraws or dies, because shares are legally transferable. (v) It enjoys limited liability since shareholders lose only capital invested in times of bankruptcy. (vi) Shares can be transferred easily through the stock exchange market. (vii) It is easy for them to get loans from banks because they have the necessary collateral.