Define Sole Proprietorship, it’s Features, Advantages & Disadvantages

The Sole Proprietorship is the oldest business organization in which an individual presents his own capital, ability and intelligence to control its affairs and is solely responsible for the decisions of its activities. This is also known as single Enterpreneurship or sole proprietorship.

The individual can run his own business or seek the help of employees. This is the first stage in the evolution of the forms of business ventures, and therefore the oldest of them.

As a sole proprietor, it is easy and simple to create in the company. The person concerned should decide to run some business and find the required capital.

For this purpose, he may often rely on his own savings, or he may borrow partially or completely from his friends or relatives.

Since the liability is unlimited, the loss will be avoided as the owner is very careful in his business activities.

This type of business is usually set up on a small scale due to limited finances and limited management skills. In addition, no legal action will be taken against a particular type of business. Bookstores, tea vendors, grana shops and shoe stores are examples of Sole Proprietorship.


Define Sole Proprietorship, it's Features, Advantages & Disadvantages

The main definitions of a sole proprietorship are:

James Stephenson: “The sole proprietor is a person who does business only for himself. He is not only the owner of the capital, but also the organizer and manager in general, and is responsible for all profits and losses.”

J.L. Hanson: “A single person is a business entity responsible for providing business capital, managing the company’s risk, and managing the business.”

Features of Sole Proprietorship

Sole proprietorship Key features of the business system include:

1. Individual Initiative: Sole Proprietorship starts a business only at the initiative of an individual who wants to start a business. He prepares business plan and organizes various production units. The profit and loss of the business is taken by the individual.

2. Single Ownership: The sole proprietorship form of a business organization has an owner who brings together all the resources to start a business. He / she only focuses on business matters.

3. Less Legal Formalities: The work and activities of an Single Enterpreneur include a few Less Legal Formalities. Therefore, its creation and curves are very simple and straightforward.

4. Unlimited Liability: The main feature of a single Enterpreneurship is that the liability of a single Enterpreneur is unlimited. In the event of a loss, his personal assets may be used to pay for business liabilities if his business assets are not sufficient for business liabilities.

5. Ownership and management Exist Together: In a single business, there is no separate entity of the business with the owner. The owner manages the business according to his own skills and intelligence. Ownership and management are indistinguishable from the organizational form of a business organization. If the owner dies or goes bankrupt or is removed from the business, the business will be terminated.

6. Motivation: A single Enterpreneur enjoys all the profits while at the same time incurring losses. No one else shares the profits and losses of the business. There is a direct relationship between effort and income. The more he works, the more he earns. This encourages him to expand his / her business activities. He only carries risks and makes a profit.

7. Confidentiality: All important decisions are made by the sole proprietor. He / she keeps all trade secrets with him alone. Trade secrets are important for small businesses to grow and avoid competitors entering the same business.

8. No separate company: The sole proprietor does not have a separate entity from the business owner. The sole proprietor and the business are one and the same. The sole proprietor is responsible for everything that happens in his / her business.

9. Single Person Control: The owner always has the power to control and regulate the sole proprietorship business. He / she prepares various plans and implements them under his / her supervision. He / she does business as he / she wishes.

10. Limited Operations: A sole proprietorship usually has limited operations because the sole proprietor has limited resources and management skills. He / she can only provide limited financial assistance and can oversee a small business.

Also Read: Define Cooperative Societies,  mention it’s Features, Advantages & Disadvantages

Advantages and Disadvantages of Sole Proprietorship

Advantages of Sole Proprietorship

The basic benefits of a sole proprietorship business are as follows:

1. Easy to create and simplify: Creating sole proprietorship of a business organization is very easy and simple because it requires less legal methods and less time. Anyone who wants to start a sole-trade business can start without wasting time. Another advantage is that the sole proprietor can stop the business at any time if he decides.

2. Immediate decision and immediate action: As mentioned earlier, no one interferes in the affairs of the sole proprietorship business. Therefore, he / she can make quick decisions on various issues related to the business and take immediate action accordingly. Decisions are unlikely to be delayed.

3. Flexibility in operations: A sole proprietorship concern usually operates on a small scale. If any change in operation is required, it is possible without great expense. Minor anxiety can adjust its production according to changing demand patterns. Expanding or reducing business operations does not require as many methods as a joint stock company.

4. Direct motivation: The owner enjoys the full benefits of the business in terms of himself/herself. He / she tries to incorporate his / her heart and soul into the business in such a way that he / she can make as much profit as possible. There is a direct relationship between effort and income. It encourages and motivates the owner to work hard and run the business efficiently and effectively.

5. Maintaining trade secrets: Trade secrets are known only to the sole proprietor. He / she does not have to disclose any information to others until he / she decides for himself / herself. He was not expected to release his business accounts. Secrecy is very important for small business concerns.

6. Personal contact with customers: It is easy to maintain good personal relationships with customers and employees as everything related to the business is handled by the owner. By knowing the likes, dislikes and tastes of the customers, the owner can change his activities accordingly. Likewise, since employees are very few and work directly under one proprietor, it helps to maintain a harmonious relationship with them and run the business smoothly.

7. Fundraising is easy: only the sole proprietor can create good character for his business through his hard work. This helps him to establish creditworthiness in the market. The sole trader tries to repay the loans quickly so as not to lose the goodwill in the market.

8. Socially desirable: single human trade is generally small. Many individual traders have entered into different types of businesses, which helps to avoid accumulation of wealth. Consumers do not rely on big business. Therefore, personal business is socially desirable.

9. Self-employment: The sole proprietorship of the business provides a means of self-employment to individuals who do not wish to work under the supervision of others. Since not everyone has a job for a living, individuals can easily start a small business as a small proprietor.

10. Inexpensive Management: Since the sole proprietor is the owner, manager and controller of his business, there is no need to hire specialized staff for the various functions of the business. He / she personally oversees all activities and avoids wastage in business. Thus, a large amount of management costs will be saved.

Disadvantages of Sole Proprietorship

The sole proprietorship business suffers only from the following disadvantages;

1. Limited resources: The resources of an individual owner are always limited. As a sole proprietor, it is not always possible to allocate sufficient funds from your own sources. Again, borrowing from friends, relatives, or banks has its consequences. Therefore, the owner has limited ability to raise funds for his business.

2. Unlimited Liability: The liability of an sole proprietor is unlimited. His / her personal assets may be used to cover business losses and liabilities. Unlimited responsibility limits his / her work and tries to be careful in taking risks. This can be detrimental to the growth and development of the business.

3. Limited Management Skills: The sole proprietorship of the business organization is always affected by the lack of management skills. An individual should not be an expert in all areas such as buying, selling and financing.

4. Lack of continuity: The same business continues as long as the sole proprietor lives. The continuity of the business is related to the life of the owner. Illness, death or bankruptcy can cause a trader to close his business. The heir of the same owner may not have the interest or ability to continue the business. Therefore, the continuity of the sole proprietorship business is highly uncertain.

5. Not suitable for large scale operations: This type of business system is not suitable for large-scale businesses as the financial resources and management skills of an individual owner are limited.

6. Wrong decisions: An sole proprietor must make all the decisions himself. He cannot approach experts to gain proper knowledge about various aspects of business. Therefore, it is possible to make wrong decisions, which can lead to losses.

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