Advantages And Disadvantages Of Sole Proprietorship

Table Of Contents

1. Meaning Of Sole Proprietorship
2. Features Of Sole Proprietorship
3. Advantages Of Sole Proprietorship
4. Disadvantages Of Sole Proprietorship

Meaning Of Sole Proprietorship

Sole proprietorship can be referred to as one man business organisation. It is a business unit that is owned and controlled by one person called the”proprietor” or ”sole trader”. He may choose to operate on his own or may employ others. The owner of the business has unlimited liabilities for the debts earned by the business. Limited liability implies that debts arising from the business can not affect his private belongings. Such debt is not confined within what the business organisation has.

Features Of Sole Proprietorship

1. Low Capital Structure: The owner of the business requires little capital to establish the business.

2. The business is owned by man.

3. Simplicity Of Formation: The sole proprietorship is the simplest structure under which business can set up.

4. There is no continuity in case of death of the proprietor.

5. The sole proprietorship is not a legal entity, because it cannot be sued to court.

6. There Is Privacy: It is not obliged by law to publish its business affairs like balance sheet on the national dailies.

7. He is independent and he makes all importance decisions guilding his business.

8. He accrues all his profit and at the same time bears all risks and losses.

9. The sole proprietor does not have limited liability. Debtors can confiscate(seize) his personal belongings like car, house, equipments etc to realize, debts from him.

Advantages Of Sole Proprietorship

1. Easy To Start: It is quite easy to start because it does not requires heavy capital outlay ( much money), great skill and legal procedure.

2. Quick Decision Making: Being one person, he makes decisions and implements them immediately.

3. Privacy: He is not obliged by law to publish his financial statement.

4. Self Interest: He is self motivated and he devises all measures to succeed as the failure of the business may wreck him.

5. Sole proprietorship business can graduate higher business which can create greater opportunities.

6. Simple Tax: Sole proprietorship business is quite simple. The income earned by the proprietor is quite small and it attracts little tax.

7. Pride Of Ownership: He is the boss, not a servant or employee. This gives him joy, contentment and sense of accomplishment.

READ ALSO: Decision Making: Meaning And Steps In Decision Making

Disadvantages Of Sole Proprietorship

1. Lack Of Capital: Lack of adequate capital presents problem to rapid expansion ( quick growth) of the business.

2. Lack Of Business Skills: A large number of sole proprietors do not have business skills and much experience with which to successfully run the business.

3. Unlimited Liability: A sole proprietor does not have limited liability. If the business fails, her would pay all debts incurred, if need be through personal belongings.

4. No Separate Identity: The sole proprietor has no separate identity from the enterprise, under the law.

5. Lack Of Continuity: Sole proprietorship does not exist perpetually. The business may cease to exist after his death, if non of his relations or children can sustain it.

6. Lack Of Economy Of Scales: A sole proprietor does not enjoy the advantage of large scale production. He cannot employ capable hands, buy in bulk, and advertise products and services. He does not enjoy the benefits of large scale production.

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