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 Form 2 Business Studies: Forms of business units lessons

How a sole proprietorship is formed and its main sources of capital

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Answer Text:
Formation of a sole proprietorship.
- The formation of a sole proprietorship is very simple.
- Few legal formalities are required i.e. to start a sole proprietorship, one need only to raise the capital required and then apply for a trading license to operate the business
small fee is paid and the trade license issued.
Sources of capital.
- The main source of capital is the Owners savings.
- Additional capital may however be raised from the following:
(i) Borrowing from friends, banks and other money lending institutions such as
Industries and Commercial Development Corporation(ICDC)and Kenya industrial estates.
(ii) Inheritance.
(iii) Personal savings.
(iv) Getting goods on credit.
(v) Getting goods on hire purchase.
(vi) Leasing or renting out one’s properties.
(vii) Donations from friends and relatives.
(viii) Ploughing back profit.


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