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Advantages and Disadvantages of Sole Proprietorship

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A sole proprietor business is established, owned, financed and controlled by a single person who is known as sole trader or sole proprietor.

Such a business run by sole trader or sole proprietor is known as sole trade or sole proprietorship.

Some of the advantages of sole proprietorship are:-

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1. Easy to Form 2. Effort-Reward Relationship 3. Full Control 4. Quick Decisions 5. Economical and Efficient Operations

6. Personal Touch. 7. Keep the Business Simple, Dynamic and Flexible 8. Society Gains as a Whole 9. Sole Beneficiary of Profits 10. Benefits of Small-Scale Operations

11. Retaining Secrecy 12. Social Desirability 13. Tax Advantage. 14. Minimum Government Control 15. Direct Motivation

16. Catering for Individual Tastes 17. Credit Standing 18. Independent Way of Life 19. Generation of Social Virtues 20. Diffusion of Business Ownership.

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21. Easy Organization 22. Direct and Personal Relation or Contact with Customers and its Employees 23. Diffusion of Economic Concentration 24. Opportunity to Develop Personality and Earn Respect.

Some of the disadvantages of sole proprietorship are:-

1. Small Size 2. Limited Shelf Life 3. Lacks Professional Skills and Talent 4. See the Big Picture 5. Unlimited Liability

6. Growth Prospects. 7. Limitation of Management Skills 8. Limitation of Capital 8. Weak Bargaining Position 9. Limited Scope for Expansion 10. Risk of Wrong Decisions

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11. No Large-Scale Economies 12. Limited Scope for Employees. 13. No Check and Control 14. The Sole Proprietor Incurs All Losses 15. Restricted Growth.


Sole Proprietorship: Advantages and Disadvantages

Advantages and Disadvantages of Sole Proprietorship

Advantages of Sole Proprietorship:

Sole proprietorship offers the following pros:

i. Easy to Form:

Proprietary concerns can be formed easily and quickly. Very few legal formalities need to be fulfilled. There is no need to go for any registration or enter into an agreement with someone. One can form it and dissolve it quickly.

ii. Effort-Reward Relationship:

Proprietary ventures give a kick in the belly. You can burn the candle of energies and make money. You take the risk and get rewarded. The effort-reward relationship often excites people to chase creative ideas and turn them into successful ventures.

iii. Full Control:

The owner has full control over everything. He is answer­able to no one else. He decides everything in the best interests of the business. Right or wrong, he takes charge of the situation.

iv. Quick Decisions:

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Proprietors can put things in order quickly if something goes wrong. If opportunities come his way, he can exploit them readily. He can give a fat discount to a loyal customer on the spot if he feels that such a step brings in additional revenues in future. Small businesses are known for their quick and effective decisions.

v. Economical and Efficient Operations:

The owner can put resources to best use. He can take steps to eliminate wastages of all kinds. He can control the cost of running the show.

vi. Personal Touch:

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The owner can bring his skills, knowledge and exper­tise to the table. He can play with his ideas and get them going. He can convert his dreams into concrete realities. He can make things happen. He can use his brilliance to good advantage.

vii. Keep the Business Simple, Dynamic and Flexible:

The owner can cut everything according to the cloth available. If there is demand, he can increase the scale and reach. If the demand is sluggish he can limit or­ders, reduce stocks and take measures to save every penny. He can run the show in sync with changing customers’ tastes and preferences.

viii. Keep the Secrets Close to Heart:

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The proprietor need not share business secrets with any one. He need not place all his cards on the table at any point of time.

ix. Society Gains as a Whole:

Small ventures benefit society a lot. Ownership is diffused. If the venture turns successful, it generates employment. Customers get what they want in nearby places.

Disadvantages of Sole Proprietorship:

Sole proprietorship suffers from the following drawbacks or cons:

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i. Small Size:

By its very nature, proprietary concerns cannot grow big. They have limited means. They cannot expand operations in a big way. As a result, they do not enjoy the economies of scale. Customers, in the final analysis, do not gain from such miniscule concerns in the long run.

ii. Limited Shelf Life:

You never know when a big Mall will come nearby and kill all small players. Small businesses have limited life spans. They exist for a while and disappear within no time if customers turn into mall rats (shopping always from big malls).

iii. Lacks Professional Skills and Talent:

The proprietor lacks professional skills, talent and expertise. He has limited knowledge and does not have the ability to gauze competition, changes in fashions and customer tastes and preferences, trends in economy etc. He cannot run the show in a professional way.

iv. See the Big Picture:

His overall knowledge of market, competition, prod­ucts, tastes of customers, changes in fashions and trends, general trends in economy, danger from global firms etc.—is relatively poor. As a result he might take inappropriate decisions in a hurry, looking at things from a narrow perspective.

v. Unlimited Liability:

If the small business owner fails, he has to swallow all losses. The liabilities of a firm might eat away the accumulated wealth of the owner almost instantaneously. The risk of unlimited liability forces many a sole proprietor not to expand operations beyond a point.

vi. Growth Prospects:

Business cannot go beyond a point for a variety of reasons—limited capital, owner lacks needed skills and competencies required to run the show on a large scale, unlimited liability compels many owners to remain small etc. The proprietary concern, therefore, does not grow to an optimum level and enjoy the economies of scale.


Advantages and Disadvantages of Sole Proprietorship – With Conclusion

Advantages of Sole Proprietorship:

A sole proprietary organisation has the following advantages and pros:

1. Ease of Formation and Closure:

A sole proprietorship business is easy to form. There is hardly any legal formality involved in setting up this type of organisation. It is not governed by any specific law. It is only required that the business activity should be lawful and comply with the rules and regulations laid down by local authorities. Also, the business can be closed whenever desired by the proprietor without any legal complications.

2. Simplicity of Operation and Flexible Management:

In sole proprietary organisa­tion, all the decisions relating to business operations are taken by one person who makes functioning of business simple and easy. The sole proprietor can also bring about changes in the size and nature of activity. This gives flexibility to business.

3. Sole Beneficiary of Profits:

The sole proprietor is the only person to whom the profits belong. There is a direct relation between effort and reward. This motivates him to work hard and bear the risks of business.

4. Benefits of Small-Scale Operations:

The sole proprietorship is generally organised for small-scale businesses. This helps the proprietor’s family members to be involved and employed in business. At the same time, such a business is also entitled to certain concessions from the government. For example, a small industrial organisation can get electricity and water at concessional rates on a priority basis.

5. Prompt Decisions:

A proprietor can take quick decisions regarding his business affairs (e.g., price policy, credit policy, discount policy, disposal of surplus funds, etc.).

He can take spot decisions as and when required. This avoids delay in important decisions.

6. Retaining Secrecy:

Business secrets are very important for every business. The secrets may be about manufacturing process, variety of goods to be produced, raw materials used, marketing of products, etc. Trade secrecy can be maintained in this form of organisation.

7. Social Desirability:

It provides self-employment, discourages concentration of wealth in a few hands and helps in developing personal qualities of self-reliance, self- confidence, tact and diligence.

8. Tax Advantage:

A sole proprietorship business has minimum tax burden as compared to other forms of business organisations. The owner is taxed as an individual and not as a business unit separately.

9. Full Control:

Owner of such organisation i.e., sole proprietor has full control over the functioning of business.

10. Minimum Government Control:

Organisations, such as Partnership firm, Joint Stock Company and Co-operative Societies are governed by the Partnership Act of 1932, the Companies Act of 1956 and the Co-operative Societies Act of 1912 respectively, whereas, Sole Proprietorship form of organisation does not have any special Act enacted for it. Thus, it functions under the minimum government control.

Disadvantages of Sole Proprietorship:

A sole proprietor generally suffers from the following limitations or cons:

1. Limitation of Management Skills:

A sole proprietor may not be able to manage the business efficiently as he is not likely to have necessary skills regarding all aspects of the business. This poses difficulties in the growth of business.

2. Limitation of Capital:

The sole proprietor of a business is generally at a disadvantage in raising sufficient capital. His own capital may be limited and his personal assets may also be insufficient for raising loans against their security. This reduces the scope of business growth.

3. Unlimited Liability:

The sole proprietor is personally liable for all business obligations. The principle of unlimited liability for the owner puts him at great risks in times of losses. For payment of business debts, his personal property can also be used, if the business assets are insufficient.

4. Lack of Continuity:

A sole proprietary organisation suffers from lack of continuity. If the proprietor is ill, this may cause temporary closure of business; and if he dies, the business may be permanently closed.

5. Weak Bargaining Position:

The proprietor cannot control the market because of his limited financial resources. Thus, his bargaining power is weak, both as a purchaser and seller.

6. Limited Scope for Expansion:

Due to limitations of capital and management, proprietorship business cannot grow and expand to a large size.

7. Risk of Wrong Decisions:

Any wrong decisions taken by the proprietor may bring disaster to his business fortunes. As he is not assisted by any person, it may lead to wrong decisions.

8. No Large-Scale Economies:

A small-scale concern cannot enjoy economies in its operations which large-scale business organisations enjoy due to higher production and less overhead expenses per unit. Their cost of production is more and they cannot face competition from large units.

9. Limited Scope for Employees:

Sole proprietorship form of organisations have limited career opportunities, because of this they are unable to attract trained and qualified persons.

10. No Check and Control:

There is nobody to question the decisions of sole proprietor and also there is nobody to guide and help him in the operations of the business.

Conclusion:

From the account of the merits and limitations of an individual proprietorship given above, it can be concluded that one-man control of business would be most efficient and profitable if only that one man has the capacity to manage everything indefinitely. Unfortunately such a person does not exist.

This form of enterprise is, therefore, suitable in the following cases:

(i) Where the capital required is small and the risk is not heavy.

(ii) Where quickness of decisions is very important.

(iii) Where the customers require personal attention.

(iv) Where special regard has to be shown to the tastes and fashions of the customers.

Naturally, then, household and personal services concerns, retail shops and professional firms are generally owned by individual proprietors. Thus, individual proprietorship has its own scope of activity, and continues to exist in spite of the development of bigger organisations, like Partnership and Joint stock companies.

In India, the individual entrepreneur organisation is still quite popular. It accounts for the largest number of business establishments in our country. The volume of business transacted by it does not, however, compared with that of partnership firms and companies.


Advantages and Disadvantages of Sole Proprietorship

Pros and Advantages of Sole Proprietorship:

(i) Quick Decision-making – A sole proprietor enjoys complete freedom in taking the decisions.

(a) It facilitates quick decision-making as there is no need to consult others. He talks all major or minor decisions.

(b) Timely decisions help him to take advantage of market opportunities as and when they arise.

(ii) Confidentiality of Information – Sole proprietor can keep all the information related to business operations confidential and maintain secrecy. A sole trader is also not bound by law to publish firm’s accounts.

(iii) Direct Incentive – A sole proprietor directly reaps the benefits of his/her efforts as he/she is the sole recipient of all the profit. This provides maximum incentive to the sole trader to work hard.

(iv) Sense of Accomplishment – The knowledge that one is responsible for the success of the business not only contributes to self-satisfaction but also instills in the individual a sense of accomplishment and confidence in one’s abilities.

(v) Ease of Formation and Closure – Sole proprietorship is easy to start as no legal formalities are required to start it (though in some cases, one may require a licence).

Limitations and Cons of Sole Proprietorship:

(i) Limited Resources – Resources of a sole proprietor are limited to his/her personal savings and borrowings from others. Banks and other lending institutions may hesitate to extend a long term loan to a sole proprietor.

(ii) Limited Life of a Business Concern – In the eyes of the law the Proprietorship and the owner are considered one and the same. Death, insolvency or illness of a proprietor affects the business and can lead to its closure.

(iii) Unlimited Liability – The sole proprietorship has unlimited liability. If the business fails, the creditors can recover their dues not merely from the business assets, but also from the Personal assets of the proprietor.

(iv) Limited Managerial Ability – The owner has to assume the responsibility of varied managerial tasks such as purchasing, selling, financing, etc. Due to limited resources, sole proprietor may not be able to employ and retain talented and ambitious employees.

Despite the limitations of size and resources, many entrepreneurs opt for this form of organisation because of its inherent advantages. It requires less amount of capital. It is best suited for businesses which are carried out on a small scale and where customers demand personalised services.


Advantages and Disadvantages of Sole Proprietorship

Advantages of Sole Proprietorship:

The principal advantages of sole proprietorship organisation are as follows:

i. Ease of Formation:

An individual enterprise is easy to form and simple to run. No legal formalities like registration are required to set it up. Any person can engage in such a business at will. The only restriction is where he wishes to start certain specified types of business. In that case, he will have to obtain a licence, as where he wants to start a restaurant, or sell opium or liquor.

ii. Direct Motivation:

The proprietor has a direct personal interest in the business which makes for efficiency and economy. Indeed, the direct relationship between effort and reward acts as a stimulus to maximum exertion for a sole proprietor.

iii. Complete Degree of Control:

As the sole proprietor is the sole master of his business, his control over it is complete. He is responsible to no one else. Actually, no problem of coordination arises; his own decisions will make for reconciliation of the various interests of the firm. As he knows all his employees personally, he is in a position to encourage team work. This helps to eliminate waste. The golden rule of capitalism that ‘where the risk lies, control must lie’, is admirably satisfied in this form of organisation.

iv. Promptness in Decision-Making:

Promptness in taking decisions makes for efficiency. A sole trader, being the supreme and sole master, can make a prompt decision, and thereby take advantage of an opportunity for gain before it slips away. Since there is no one else to dispute his judgment, he can also maintain a decision made by him.

v. Flexibility in Operation:

As the proprietor has the full control over his business and is the supreme judge in all matters, he can introduce changes as the exigencies of occasion demand, and without any delay. Hence, there is a great deal of flexibility in policy-making in this type of organisation.

vi. Maintenance of Secrecy:

Secrecy is of vital-importance for the success of a small business; and a sole trader is in an eminent position to keep his affairs to himself. As there is no legal obligation to supply any information regarding his business to any one, he can maintain utmost secrecy in all matters.

vii. Catering for Individual Tastes:

A sole trader is in a position to be in close touch with his customers and to cater for their individual tastes. This helps him to build up goodwill for himself. The individual owner flourishes in all enterprises where the “personal element” is important.

viii. Credit Standing:

The fact of large goodwill and wide clientele, coupled with unlimited liability are likely to prompt creditors to grant him liberal credit. The assets of the firm along with his resources outside the firm (i.e., his private property and investments) will all help to build up his credit-worthiness with the result that the suppliers and other institutions will readily extend him credit.

ix. Minimum Government Regulation:

The activities of a sole trader are regulated by government and law to the minimum extent. In fact, his rights and obligations are the same as of any other citizen. It is true that a sole proprietor has to comply with tax and labour laws, but otherwise interference is minimum. The formation and dissolution of the business are not subject to any government regulation in this form of organisa­tion.

Social Advantages of Individual Proprietorship:

The sociological significance of individual proprietorship in the form of a small shop consists in rendering some important, nay, indispensable services to the community and at the same time providing the basis of an independent livelihood for many.

i. Independent Way of Life:

This form of organisation provides a way of life for those who take pride in ownership and control of what they own. Such persons are obviously of independent spirit and would not care to serve under others. It gives him an opportunity to utilize his capacity to the maximum and to enjoy freedom of action. The sole proprietor is his own master and manager, and this fact generates the greatest possible satisfaction.

ii. Generation of Social Virtues:

It affords a form of life and work which permits a high degree of self-determination, the enjoyment of purposeful work, the warmth of social contact, and a well-integrated family and respectable life. It also develops the qualities of self-reliance, responsibility, and initiative, which are of great social importance.

iii. Diffusion of Business Ownership:

As under this form of organisa­tion, a very large number of people must own and manage vast number of small business units; it makes for diffusion of business ownership as against concentration of power in a few hands offered by a joint stock company.

Disadvantages of Sole Proprietorship:

Despite so many advantages, both economic and social, one-man business, suffers from some very serious limitations.

The limitations of individual proprietorship are as follows:

i. Limited Amount of Capital:

The first limitation is as to capital. The amount of capital that a sole proprietor can get together must of necessity be limited. Save for a few exceptions, no one would be rich enough or even inclined to supply considerable amount of money for his business. Since the sole trader determines his business policy, investors cannot readily be induced to give their funds into his hands.

He is therefore limited to such funds as he may own or raise from friends and relatives. As a result, he cannot expand his business when it may be found necessary to take advantage of economies of large-scale operation.

ii. Limited Managerial Ability:

An individual, however capable, can­not be expected to possess full knowledge of all branches of a business and is bound to fritter away his energies in doing things which could best be left to others in a partnership or a company. Since, being alone, he must keep his fingers on everything; he carries a staggering load of responsibility, which may crush him under its weight unless he is a giant in judgment, intelligence and intellect.

He may, therefore, at times make wrong decisions which would increase the cost of production and decrease his profits. After all, two heads are better than one, unless the one is the best.

iii. Unlimited Liability:

The liability of the proprietor is unlimited. It is not only the assets of the business that are liable, but also his entire personal fortune for the debts of the business. The advantage of personal control is counterbalanced by personal risk which might turn out to be very great.

Limited capital and managerial ability and unlimited liability of the owner act as brakes to the development and expansion of business.

iv. Uncertainty of Continuity:

Permanence or continuity of business is difficult to maintain. When the proprietor dies or is no longer able to run the business, the business may come to an end, if there is no one capable enough to take his place. Very often the heirs lack the requisite ability or inclination to carry on the business. If it falls into weak hands, it will fail causing loss not only to the owner but also to society. The closure of the business, which has been rendering a useful service to the community, would be a social loss.

In conclusion, it may be safely stated that one-man control is the best from the point of view of efficiency and profitability, provided that one man is big enough to manage everything indefinitely.


Advantages and Disadvantages of Sole Proprietorship – Over Other Forms of Business Ownership

Advantages of Sole Proprietorship:

The sole proprietor form of ownership has the following pros over other forms of business ownership:

i. All Earnings Go to the Sole Proprietor:

The sole proprietor (owner) does not have to share the firm’s earnings with other owners. Thus, the rewards of establishing a successful firm come back to the owner.

ii. Easy Organization:

Establishing a sole proprietorship is relatively easy. The legal requirements are minimal. A sole proprietorship need not establish a separate legal entity. The owner must register the firm with the state, which can normally be done by mail. The owner may also need to apply for an occupational license to conduct a particular type of business. The specific license requirements vary with the state and even the city where the business is located.

iii. Complete Control:

Having only one owner with complete control of the firm eliminates the chance of conflicts during the decision-making process. For example, an owner of a restaurant can decide on the menu, the prices, and the salaries paid to employees.

iv. Lower Taxes:

Because the earnings in a proprietorship are considered to be personal income, they may be subject to lower taxes than those imposed on some other forms of business ownership.

Disadvantages of Sole Proprietorship:

Along with its advantages, the sole proprietorship has the following disadvantages:

i. The Sole Proprietor Incurs All Losses:

Just as sole proprietors do not have to share the profits, they are unable to share any losses that the firm incurs. For example, assume you invest $10,000 of your funds in a lawn service and borrow an additional $8,000 that you invest in the business.

Unfortunately, the revenue is barely sufficient to pay salaries to your employees, and you terminate the firm. You have not only lost all of your $10,000 investment in the firm but also are liable for the $8,000 that you borrowed. Since you are the sole proprietor, no other owners are available to help cover the losses.

ii. Unlimited Liability:

A sole proprietor is subject to unlimited liability, which means there is no limit on the debts for which the owner is liable. If a sole proprietorship is sued, the sole proprietor is personally liable for any judgment against that firm.

iii. Limited Funds:

A sole proprietor may have limited funds available to invest in the firm. Thus, sole proprietors have difficulty engaging in airplane manufacturing, shipbuilding, computer manufacturing, and other businesses that require substantial funds. Sole proprietors have limited funds to support the firm’s expansion or to absorb temporary losses.

A poorly performing firm may improve if given sufficient time. But if this firm cannot obtain additional funds to make up for its losses, it may not be able to continue in business long enough to recover.

iv. Limited Skills:

A sole proprietor has limited skills and may be unable to control all parts of the business. For example, a sole proprietor may have difficulty running a large medical practice because different types of expertise may be needed.


Advantages and Disadvantages of Sole Proprietorship

Advantages of Sole Proprietorship:

The pros and merits of sole proprietorship form of organisation are as follows:

1. Easy formation – It is very easy and simple to form a sole-proprietorship. No legal formalities are required to be observed for its formation. It is free from most of the government controls and regulations. So it is easy to operate.

2. Full control – Proprietor exercises full control over the functioning and working of the business.

3. Quick decisions – The proprietor need not consult others while deciding the affairs of his concern. Business is dynamic in character. Changing market conditions demand quick decision and prompt action on the part of the proprietor. As he is the whole and sole authority of his business unit he can take quick decisions and implement them promptly.

4. Secrecy of business – The secrecy can be maintained about the business matters. He is able to take full advantage of any new ideas that may come to his mind. The sole proprietor need not publish his accounts thereby disclosing the profits to rivals.

5. Personal contacts – A sole trader knows the customers personally and he is able to cater to their individual tastes. It is easier for him to know the likes and dislikes of the customers, their habits, attitudes, grievances etc. He can thus adopt ways to satisfy his customers. He can also maintain harmonious relations with the employees which has positive impact on the success of the business.

6. Flexibility in operation – In this form of organisation there is a great deal of flexibility in policy-making. The proprietor can change his business policies and introduce necessary changes in other business matters as the change of situation demands.

7. Direct motivation – There is a direct relation between the efforts and the rewards in the case of a sole trader. As the profits earned by a sole trading concern are not shared by any person other than the trader himself, he makes maximum efforts in order to earn maximum profits.

8. Social desirability – This kind of business organisation develops among business people the qualities of self-reliance, responsibility, being tactful and initiative. These qualities develop the personality of the person. Moreover, such business Organisation facilitates equal distribution of wealth in the society and creates employment opportunities. All these facts lead to the social desirability of this type of organisation.

Disadvantages or Demerits of Sole Proprietorship:

A sole proprietorship form of business suffers from the following shortcomings:

1. Limited financial resources – The resources of a single individual, however rich he may be, are limited. He can obtain capital from his personal savings, or borrow on personal security. As his borrowing capacity is limited he cannot raise unlimited amounts of money. Because of this, he cannot develop or expand his business beyond a certain limit.

2. Limited managerial skills – In modern business, knowledge and skills in various areas like production, finance, marketing, etc. are required. It is not possible for a single individual to possess expertise in all these areas.

3. Unlimited liability – The liability of the sole trader is unlimited. It means private property of the trader also is liable to pay off the business debts. So the sole trader will always be haunted by the fear of losing his private property in case his business fails.

4. Lack of continuity/stability – Such form of organisation suffers from lack of continuity/stability since the continuity and stability of the business depends solely on one person. The illness of the proprietor may cause temporary closure of business and the death of the proprietor may cause the permanent closure.

5. Limited restriction on growth – Due to the limitations of finance, managerial ability and uncertain life, the expansion of business is restricted. The size of business remains uneconomic or below the optimum level. Fear of unlimited liability also makes the proprietor conservative.

6. Weak bargaining power – He has weak bargaining power both as a purchaser and seller as he buys and sells in small quantity.

Conclusion:

On the basis of comparative advantages (Merits) and disadvantages (Demerits) of sole proprietorship, it can be said that one man control would be the most efficient and profitable only if he has sufficient resources including managerial skills to manage anything indefinitely. Unfortunately such a person does not exist.

Therefore, sole proprietorship is suitable only in the following cases:

(a) Where small amount of capital is required, e.g., sweet shops, bakeries, etc.

(b) Where quick decisions are very important, e.g., bullion dealers, share brokers, etc.

(c) Where limited risk is involved, e.g., confectionery stores, small retail stores, etc.

(d) Where the customers require personal attention, e.g., beauty parlours, tailoring shops, lawyers, painters, etc.

(e) Where the market is limited e.g., retail trade, laundry, fruit sellers, etc.

(f) Where fashions change quickly, e.g., artistic furniture, etc.

(g) Where the operation is simple and does not require skilled management.


Advantages and Disadvantages of Sole Proprietorship

Merits or Advantages of Sole Proprietorship:

1. Easy Formation and Dissolution:

There are no legal formalities to start a sole proprietary business. Therefore, it become easy to start. There may be a negligible or few restrictions imposed by local bodies such as municipal corporation etc. for health, sanitation and environment point of view, that must be followed by him. It is equally easy to dissolve the sole proprietary business. There are no legal formalities for dissolution too. An individual can easily start the business under this form and can easily dissolve the same.

2. Self or Direct Motivation:

In this form of business organisation, there is a direct relationship between the efforts and profits. Sole proprietor himself enjoys the entire profit, therefore, he is self-motivated, inspired or induced to put in his best and maximum efforts, talents, knowledge and skills in running the business successfully.

3. Absolute or Total Control:

The sole proprietor prepares plans, policies and executes the same and manages the affairs of the business organisation. No one has right to interfere in his business affairs. He is free to direct and control the business operations.

4. Sole and Quick Decisions:

All the decisions regarding business organisations are taken by the sole proprietor. He does not have to depend on others for decisions. Therefore, the decisions are taken in proprietorship is sole and quicker. The implementation of such decisions is also done quickly without delay. Reason behind this is, that he only is the decision maker and executor.

5. Minimum Government Regulation:

The sole proprietorship is free from legal intervention and formalities. This type of business form is least regulated by law and the government. There is no intervention by the government in day to day functioning of the business. There is no government regulation in respect of formation and dissolution of the business. But the Tax Laws and Labour Laws are required to be observed.

6. Business Secrecy:

In a competitive world business secrecies must be highly maintained. In this form of business organisations all the business secrets are highly retained as non-else share them.

7. Direct and Personal Relation or Contact with Customers and its Employees:

In sole proprietorship the capital investment is small therefore, size of the business is also small and limited. That is why he is able to keep direct and personal relationship with his customers and employees. He is able to give personal attention and care towards customers and employees, and therefore, it is possible to give best services to both of them which in turn increases his profit.

8. Flexible Operations:

There is ample scope for flexibility in business operations. A sole proprietor can easily adjust himself and his business operations according to changes occurring within and outside the business organisation.

9. Credit Standing in Market:

A sole proprietor can enhance his name and fame in the market by managing business operations profitably. If he is honest and prompt enough to pay the debts of his business he can earn good reputation in the nearby markets and therefore, the bankers, creditors generally do not hesitate in giving credit facilities to him.

10. Diffusion of Economic Concentration:

In sole proprietorship business organisation there is far and wide ownership, which ultimately helps in diffusion of concentration of economic power in the hands of few people. A large number of people in society carry on their businesses under sole proprietorship.

11. Opportunity to Develop Personality and Earn Respect:

Under this form of business, the sole proprietor has to invest, manage, control, and has to take decision himself. Therefore, the qualities like leadership, decision, and making, problem solving ability, initiative, self-reliance, and ability to face all challenges are automatically developed in him. All round personality can thus, be developed by him. Because of his business profits and prosperity, he can enjoy a respectful life in the society and can get love and affection from the, citizens.

Demerits or Disadvantages:

1. Limited Capital or Financial Resources:

The capital raised by the sole proprietor is by himself and through credit still the amount of capital is limited. Because of unlimited liabilities, he is not interested to invest more money in business. Therefore, the size of the business is small or limited.

2. Unlimited Liability:

All the losses and risks in business are solely borne by sole proprietor. If the risks, losses, or debts could not be met out of the business assets and resources, his personal property also is attached and sold to satisfy the debts and claims of the creditors.

3. Limited Managerial Ability, Skill and Knowledge:

Today’s Business requires managerial ability, skill and knowledge in various areas like production, financing, marketing, purchasing material, person or human resources etc. It is very difficult to acquire all the qualities, for a sole person. Therefore, there is always lack of specialised skill, knowledge, ability, which in turn adversely affect the profit.

4. Uncertain Duration:

There is no separate entity of the firm from the sole proprietor so it is highly uncertain. If he becomes insolvent or physically handicapped (disability, insanity) or dies the business comes to an end.

5. Restricted Growth:

Because of limited financial resources and limited managerial ability, skill, and talent the development and growth of the business is also limited.

To sum up, the sole proprietorship can survive only when the business is small and simple the market is local and the demand for capital and skill is modest.


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