The business of sole proprietorship does not have much expansion. It is mostly small. The main reason for this is that its tools are limited. Its scope of business is limited to its capital and efficiency. It is not possible to expand beyond that. In this article we will know what is Sole Proprietorship and what are the advantages and disadvantages of Sole Proprietorship.
What is Sole Proprietorship
Sole proprietorship is a form of business in which a single person starts, runs and bears the benefits and losses. Thus a sole trader is a person who runs a trade at his own risk and is also responsible for all the profits or losses from it. That is why they are called as ‘Sale Trader’, ‘Individual Entrepreneur’, ‘Personal Organizer’ etc.
According to Mr. Charles W. Gutenberg, “Sole proprietorship is a business that is started by one person and the person who runs it is fully responsible for the profits and losses.”
According to Louis Haney, “Sole proprietorship is a form of business in which the sole proprietor is responsible for all his actions, conducts his affairs and bears the full burden of profit and loss.”
Even today, the number of sole proprietorships is the highest. Examples of single merchants were retailers, peddlers, confectioners, actual service providers, doctors, lawyers, etc. Sole proprietorship is not just a small business.
Advantages of Sole Proprietorship
(1) Exemption from statutory etiquette
There is no legal impediment to the establishment of sole proprietorship. He can trade whenever and wherever he wants. Unlike other business entities, this type of trade does not require legal action to obtain or obtain a government license to initiate or terminate.
(2) Freedom of decision
The sole proprietorship dealer is the sole owner of your business. He does not need to consult anyone. He can act quickly by making independent decisions in any business case.
(3) Monopoly on total profits
Being sole proprietorship, only one person is entitled to full benefit. The feeling that the whole profit will fall in her position increases the efficiency and she works harder and smarter to motivate the maximum profit.
(4) Direct contact with customers
The sole proprietorship merchant himself comes in contact with his clients and builds a cordial relationship with them. Because of the close contact, the individual trader can better study the preferences and demands of the consumers. So he is able to serve them.
The sole proprietorship trader can keep the features of his business secret. Confidentiality is essential to commercial success in today’s age of competition.
Material cannot be used in sole proprietorship. He tries to make the best use of the limited resources of single trade.
In case of loss the entire burden falls on the head of this lone trader, so he is always aware. Such personal tastes do not come in any other type of professional organization. Because in other types of organization the members do not have direct and complete interest.
Disadvantages of Sole Proprietorship
(1) Limited capital
The capital of a privately owned organization depends on the strength of that particular person. Therefore, the effect of capital is limited to the private capital of the owner and the bonds he can get. It takes a lot of capital to open a huge factory. Therefore, large scale industries are beyond the power of sole proprietorship.
(2) Limited management tact
The ingenuity of sole proprietorship management is also limited. An individual’s judgment, discretion, and management ability are generally limited. This can be a barrier to growing business success. She can hire as many employees as she wants.
But it is futile to expect self-motivated curiosity and interest from salaried employees. One thinker wrote that if the person is big enough to handle the business properly, then sole proprietorship is the best in the world.
(3) Unlimited liability
In this trade, ownership and risk go hand in hand. If there is more profit, then he is the sole owner of full profit. On the other hand, it alone bears the brunt of the damage. His personal property is liable in case of loss. That is, its liability is unlimited. So
(4) Quick decision alone
The wrong Sole Proprietorship trader can make a quick decision, but without consultation his decision can be wrong and the trade can be damaged.
(5) Loss due to absence
The success of sole proprietorship depends on the presence of the owner and his personal supervision. Therefore, if he is absent due to being busy or unwell elsewhere, then the entire work has to be handed over to the staff. So often the loss has to be borne.
(6) Suspicion due to privacy
In sole proprietorship, privacy is sometimes an obstacle to the organization’s progress. Because of confidentiality, lenders may not be fully aware of the financial situation of a single trader. Not everyone can have a complete understanding of the financial situation. They understand that capacity is limited. Therefore, a trader of Sole Proprietorship can never obtain a loan beyond this limit.