Which of the following best explains why a sole trader may find it difficult to expand the business?

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Question

Which of the following best explains why a sole trader may find it difficult to expand the business?

Accepted Answer

Sole traders are limited in raising capital as they rely mainly on personal funds — A sole trader relies primarily on personal savings and bank loans to finance the business, which limits the capital available for expansion compared to partnerships or companies that can pool funds from multiple sources. Option A is incorrect as sole traders can legally employ staff. Option B is incorrect as sole traders can advertise. Option D is incorrect as sole traders do not share profits — that is a feature of partnerships.

Answer

Sole traders cannot advertise their products or services

Answer

Sole traders must share all profits, reducing funds available for reinvestment

Answer

Sole traders are legally prevented from hiring employees

Answer

Sole traders are limited in raising capital as they rely mainly on personal funds

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