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Old 13-06-2011, 04:13 PM
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Exclamation Sole Proprietorship

Sole Proprietorship

It is the form of business organization in which an individual introduce his own capital, uses his own skill and intelligence in the management of its affairs and is solely responsible for the results of its operations. He may run the business alone or may obtain the assistance of employees. It is the easiest to form and is also the simplest in organization. The sole proprietor may borrow or sue other people's money in financing his business.

"The individual proprietor is the supreme judge of all matters pertaining to his business, subject only to the general laws of the land and to such special legislation as may affect his particular business."


Advantages of Sole Proprietorship

1. Easy to Start

The formation of sole proprietorship is quite easy than partnership and joint stock Company. There are no legal formalities for starting this business, like agreement, memorandum of association or articles of association.

2. Easy to Dissolve

It is easy to dissolve because the sole trader is not required to take permission for dissolution either from shareholders in the general meeting as in the case of joint stock companies or consult all the partners in the case of partnership.

3. Freedom of Action

A sole trader has maximum freedom to take decision at his own end. His decision is final. He may expand his business by adding new products or can discontinue old ones. A sole proprietor can wind up his business or he can change his business place from one place to another.

4. Freedom from Government Control

A sole trader is free from government control a great extent than any other form of organization. A sole trader is not required to send his periodical balance sheet to the government.

5. Owner of All Profits

No other form of organization permits to retain cent percent profit they earn. But in sole proprietorship, the sole trader is the master of his business and is entitled to retain the entire profit of the business.

6. Low Taxes

He has to pay minimum income tax and other taxes than in partnership and Joint Stock Company. In this manner he saves much out of his profit.

7. Secrecy

Secrecy is he base of a business and it should not be disclosed. Success of a business is based on secrecy. A sole trader can maintain secrets of his business but it is not possible to keep secrets in partnership or Joint Stock Company.

8. Low Cost Organization

A sole trader is not required to pay registration fees as paid by Joint Stock Company and legal fees in the formation of partnership.

9. Full Control

Sole trader has got full control over his planning. No body is there to interfere in his business.

10. Immediate Action and Quick Decision

In business, it becomes very essential to take decision at particular times and for that purpose immediate action is required. Sole trader can take quick decision and immediate action but in partnership and joint stock companies action cannot be taken without the persmission of owners and meeting should be called for this purpose. In this way business cannot take the proper advantage of time.

11. Flexibility of Organization

If any change in the business is called for, the sole proprietor has a right to bring about the change. A good number of giant sized concerns fail on account of their inability to change their policies promptly with a change in the situation.

12. Social Desirabilities

From the social point of view:

1. Continuity of individual proprietorships ensures that too much wealth does not get concentrated in few hands.
2. The unlimited liability ensures sufficient responsibility to the society.
3. It brings into full play the qualities of self-confidence, diligence and tact among business people.

4. The growing number of sole proprietorship firms contribute to the commercial development of a country.

13. Personal Incentive

A man in business for himself has everything to lose if his efforts are not successful to earn profits. This fact makes him willing to devote maximum time, thought and energy to the successful prosecution of the activities of business he has organized.

14. Credit Worthiness

A sole proprietor's liabilities are unlimited as the creditor can even recover his amount from the personal belongings of the trader. Therefore, this fact makes a sole proprietor credit worthy.
Disadvantages of Sole Proprietorship
The sole proprietorship has some disadvantages, which are as follows:

1. Limited finances

the sole proprietor can face financial problems. He can depend only his own resources. It is neither safe nor easy for him to borrow large amounts of money from banks or other financial institutions.

2. Difficulties in Management

Each individual has a particular ability or aptitude in particular respect. Modern businesses full of complications arising specially from the ever-changing nature of market and the various laws that are being enacted. An individual may not be an expert in all matters, therefore, some times his decisions may be unbalanced and would lead to the failure of the business.

3. Limited Span of Supervision

A sole proprietor however qualified and clever will find it hard to supervise the work of his sub-ordinates beyond a certain limit e.g. in case of a large general store owned by single person, it will be difficult for the owner to keep an eye on all the departments and employees and to sure that the customers are treated nicely. The problem will be more acute if the store has its branches in other places.

4. Limitation on Size

Because of limitation of finance, managerial skills and span of supervision, a sole proprietor has to manage the size of the business up to a certain limit. This deprives the firm of the opportunities of reaping the economics of large-scale production.

5. Unlimited Liability

The sole proprietor assumes a great risk. It is true that he receives all the profits of the business but likewise he has to face the entire losses. Not only the assets of the business but also his private assets will be used to pay off the firms debts and losses. Unlimited liability also discourages the expansion of business.

6. Lack of Continuity

Any personal problem or illness, which is affecting the sole proprietor to, has a direct effect on his business. It ends with the retirement, death or bankruptcy o the owner. If the busines is rendering useful services to the society, the closure of such a business will be a social loss. Similarly, with the death of the proprietor, the business may pass on to his successors who may not posses the same degree of self-reliance, ability and intelligence.

7. Ease of Formation

The very ease and cheapness of entering business as a proprietor may be a disadvantage. Many people go into business with too little capital and training and are clashed by the competition of the business. As a result, a number of business failures and proprietorships.


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