Features of the Governing Business Activity

Sole trading and partnership firms constitute small business entities which may be probably based on one country with comparatively lower financial resources. Insole trading, an individual procures initial capital and runs his venture as he is his own master. Individuals with innovative notions, business experience, and sufficient venture capital like to conduct sole trade business firms. ‘More risk more profit’ is the business motto of the sole trader since he owns everything that he earned from the business. At the same time, the partnership is formed on the strength of partnership deed by which two or more persons with the same interests combine together to form their business. Under the partnership, all partners have equal access to business which facilitates the division of risk among the partners. In the case of sole trader and partnership, registration is not necessary and members have unlimited liability. Small businesses depend on many factors for survival so that suppliers’ price, wages, interest rates can directly affect the business operations of these concerns (lecture notes).As Gitman and McDaniel (2008 p.141) state, small business firms are formed by limited number of persons, and they cannot easily raise funds during the times of contingencies. The major contingencies to small business firms arise in the form of rival business organizations. Often, competitors enter into the market with same quality products as that of existing concerns but with fewer price rates in order to dominate the market. Similarly, they might apply most modern marketing as well as advertising techniques with a view to taking root in the market. It forces the small business enterprises to sell their products at reduced prices, sometimes even less than the acquired cost. If it continues, the small business concerns reach a stage where expenses are greater than revenue. Naturally, it weakens the bank and cash balance of the firms thereby they face difficulties in meeting working capital requirements.