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Meaning, Advantages And Disadvantages Of Sole Proprietorship


Meaning, Advantages And Disadvantages Of Sole Proprietorship

MEANING OF SOLE PROPRIETORSHIP
Sole proprietor may be defined as a form sole proprietor of business enterprise owned, financed and managed by one person with the primary aim of maximizing profit. The sole proprietorship, also popularly known as ONE-MAN BUSINESS is the oldest and most common type of business organization. It is an unincorporated business unit owned by one person who provides the capital, runs the business and undertakes the risks and profit of the business alone.

Examples of sole proprietorship are found in primary industries like farming, fishing; in secondary industries like small scale manufacturing and printing especially in tertiary industries like lawyers, doctors, tailors, barbers, hairdressers, musicians and traders.

ADVANTAGES OF SOLE PROPRIETORSHIP

IT INVOLVES SMALL CAPITAL: The sole proprietorship requires very small capital for setup.

IT IS EASY TO ESTABLISH: The one-man business is easy to establish because of the small capital requirement and it may not involve much procedures when setting up the business

TAKING OF QUICK DECISIONS: Quick decisions are usually taken by the sole proprietor alone without the consent of other workers in the organization

IT IS EASY TO MANAGE: The sole proprietor can easily manage the operations of the enterprise without expert management from outside

ALL PROFIT BELONGS TO THE OWNER: All the profit derived from the business belongs to the owner of the business because the capital outlay came from him.

IT CAN THRIVE IN ALL BUSINESS: The sole proprietor can thrive in almost all business environments be it rural or urban environment because of its simplicity in establishment.

THERE IS PRIVACY IN CONDUCTING BUSINESS AFFAIRS: The sole proprietor can keep his business matters secret. He is not required to publish his account or submit an audited balance sheet to the registrar of companies

THERE IS A CLOSE RELATIONSHIP BETWEEN OWNER AND EMPLOYEE: In a one-man business, the workers are personally known to the owner. This makes supervision easy and ensures effectiveness of business operations.

THERE IS A CLOSE RELATIONSHIP BETWEEN OWNER AND CUSTOMERS: The close relationship between the owner and customers allows the later to give special attention to the latter. Also, he can easily find out the special requirements of customers and satisfy them.

THE SOLE PROPRIETOR ENJOYS PERSONAL REWARDS: He has a personal interest in the business and invests his time, money and effort so as to get reward at the end of the day.

 THERE IS EFFECTIVE PLANNING: The sole proprietor embarks on effective planning and formulation of policies alone and these will guide him in the smooth running of the enterprise by way of taking prompt business advantages, e.g. in sales and purchases.

DISADVANTAGES OF SOLE PROPRIETORSHIP

PROBLEM OF CONTINUITY: In event of the death of the owner, the business may also die with him, especially when there is no successor to take over from him.

INADEQUATE CAPITAL: The sole proprietor is always faced with inadequate capital because of the small size of his business and his inability to source funds outside his business.

HE BEARS ALL THE RISKS ALONE: The risk required in operating the business is borne solely by the owner. If the business is successful, he rejoices but when it fails, he suffers it all alone.

IT HAS UNLIMITED LIABILITY: In the event of business failure, his assets and properties has to be sold to pay his creditors.

IT IS NOT A SEPARATE LEGAL ENTITY: In law, there is no difference between the owner of sole proprietorship and the business itself. The business cannot sue or be sued in its own right.

HE LACKS SPECIALIZATION: The owner is personally involved in every section of the business. He works very hard; he may not take public holidays, and scarcely has rest. In most cases, when he is absent, the business close down temporarily.

THERE IS LIMITATION IN EXPANSION: The sole proprietor suffers from lack of expansion, as a result of inadequate capital.

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