Sole-Proprietorship:
A dictionary of Economics and Commerce has this to say that sole proprietorship sometimes knows as a one-man business it is a type of business unit where one person is solely responsibility for providing the capital for bearing the risk of the enterprise and for management of the business.
Some authors defined as:
“Sole proprietorship is a type of business organization operate business.
According to D.W.T. Stafford:
“It is a simple form of business which is owed and controlled by one man”
In short sole proprietorship is a form of business organization in which an individual introduces his own capital, uses his own skill and intelligence in the management of its affairs’ assumes all tile risk of business and is solely responsible for the result of its operations.
Advantages/Merits of Sole Proprietorship:
People prefer the sole proprietorship on the following reasons/advantages/merits:
1. Easy Formation:
A sole proprietorship is easy to form and very simple to run. There is no any legal restriction like registration. So sole proprietorship can be started without the wastage of time.
2. Independence:
A sole proprietorship is an independent form of business and there is no interference of any other person in such organization. A sole proprietor is the supreme authority of business.
3. Personal Interest:
A sole proprietor takes keen interest that he is responsible of profit and loss. So a sole proprietor devotes his full time and energy to his business.
4. Direct Relationship:
In sole proprietorship sole proprietor has direct relationship with the workers. He can easily understand the problems of the worker and tries his best to solve them. He develops his cordial relations with customers and general public in order to create the demand of his goods. In this way he increases the profit of his business.
5. Contract with customers:
In this business a businessman has direct contact with the customers and he keeps is view the demand liking and disliking of the people. So sole trader produces goods according consumers.
6. Easy Transfer:
In such business a sole trader can make quick decisions for the development of his business and in such a way he saves the time.
7. Quick Decisions:
In such business a sole trader can make quick decisions for the development of his business and in such a way he save tile time.
8. Business Secrecy:
Business secrecy is an important factor for the success of a business. Sole proprietors can easily maintain secrecy of business.
9. Entire Profit:
A sole proprietor is the only businessman who enjoys 100% profit.
10. Entire Control:
In sole proprietorship the control and supervision of a business remains in the halide of one person. Sole trader can do whatever he likes.
11. Easy Dissolution:
The sole proprietorship can be easily dissolved as there are no legal formalities involved in it.
12. Credit Facilities:
In such business a sole proprietor can easily borrow the money because the liability of the owner is unlimited.
13. Saving in Cost:
In sole proprietorship business mostly the functions are performed by the sole trader. If he needs capital so he borrows such capital from his relatives without any interest as a result of this he reduces the cast of production.
14. Saving in Taxes:
In such business the rate of taxes is very low because tax is imposed on the income of a single person who is tile owner of sole tradership.
15. Social Benefits:
Sole proprietorship reduces the unemployment and provides public daily necessities of life.
16. Flexibility:
In such form of business a sole trader can easily changes the business policy at any time according the market conditions. A sole proprietor can introduce new technique of production without the consent of any other person.
17. Freedom to Manager:
The sole trader is the supreme incharge in his business. Sole trader cans tale his own decision. He has freedom to manage the business.
Now quest arises whether one-man control is regarded best in the world. The answer is that one-man control is considered best in the world if the size of the business is small.
Disadvantages
Following are the disadvantages of sole proprietorship.
1. Lack of Capital:
Generally one-man source are limited. Due to financial problems he can not expand his business.
2. Unlimited Liability:
In case of loss a proprietor faces the risk of unlimited liability. The personal property of the proprietor can be sold to satisfy the claimants. It is a disadvantage.
3. Management problems:
One man can not perform all types of duties effectively. If he is a good accountant he may not be a good administrator. Due to this business suffers a loss.
4. Lack of Public Confidence:
Public shows less confidence on this type of business because there is no legal regulations to control and to wind up the business.
5. Lack of skilled persons:
One man can not hire the services of qualified and experienced persons because he has a limited sources. So he can not achieve the maximum profit from his investment.
6. Difficulty in Expansion:
In this business a person can not expand the business. It remains limited due to limited life and limited capital.
7. Not Durable:
This type of business organization if purely temporary and in case of proprietors death or heavy loss it removes.
8. Chances of Fraud:
In a sole-proprietorship generally proper record of the business is not maintained. It increases the chances of fraud for the dishonest workers.
9. Permanent Existence:
In this business there is a need of permanent existence of a businessman. In case of absence from business for few days may become the cause of loss.
10. Lack of Inspection and Audit:
In the sole-proprietorship there is no need of audit and inspection. Sometimes a businessman is found in illegal activates like black marketing and smuggling.
11. Lack of Innovation:
In this business a single man is responsible for loss, so he fears thus new methods of production. So there is no invention and innovation in this business.
12. Lack of Advertisement:
In the present age advertisement plays very important role in increasing the rate of the product. But a single proprietor can not bear the expenses of advertisement.
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