Meaning Of Sole Proprietorship Business: Advantages And Disadvantages
MEANING OF SOLE PROPRIETORSHIP
Sole proprietorship may be defined as
a form 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 takes all the
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.
