Sole proprietorship is called individual person business. It can be defines as a form of business in which an individual person invest his own capital, uses his own talent and experience dealing with the affairs of management, assumes all the threat of business and also responsible for the result of the operations”. E.g. General stores, Bakery, Hardware stores, Service station, Doctors clinic, and Beauty parlors etc all are examples of sole proprietorship. The sole proprietorship is a form of business, which utmost popular in all over the world.
Characteristic of Sole Proprietorship
- Ownership: The ownership in sole proprietorship is held by a single person who runs the business.
- Management and control : One of the characteristic of sole proprietorship is that it is managed by owner himself, due to small in size of business.
- Finance: In sole trader ship the owner himself managed capital of the business.
- Risk: In this type of business, the owner himself responsible for all the risks occurs in the business.
- Unlimited liability: One of the characteristic of sole proprietorship is that its unlimited liability. The owner is personally responsible for the debt which is occurred in the business.
- Legal status: In the eyes of law, the combination of sole trader and his business are combined together and treated as one.
- Relationship with customers: The owner of the business tries to keep good relationship with his customers.
- Ease of dissolution: One of the important characteristic of sole proprietorship is that it can easily dissolve as like its formation.
Advantages of Sole Proprietorship
- Ease of formation. The main advantage of sole proprietorship is that it can easily be formed by any person by undertaken any legal business for earning profit.
- Sole authority. The owner of the business has complete authority to deal with the affairs of business. He prepares the plain, invest his money, supervise the business and enjoy the profit.
- Sole claim on profit. The owner of the business receives full profit earned from the business.
- Flexible management. The sole proprietor make prompt decision, in carrying out policies, changes the methods of production, reducing or increasing the prices, of the commodities, delegating responsibilities etc.
- Credit standing. The owner of the business enjoys an excellent credit rating among the creditors.
- Legal status. As the sole proprietor and the business have one personality. Therefore, all the assets, liabilities, profits and losses on the part of owner.
- A sole trader being the owner of the business has high standard of secrecy due to their own managing of the affairs of the business.
- Direct relationship with customers. A sole trader has closed relation with his customers. Therefore, he offers everything according to the taste of the customers. This creates his goodwill in the market.
- Benefits of inherited goodwill. The ownership of the business passes from generation to generation thus enables the son to reap the benefits of goodwill of his father.
- Tax advantage. The sole proprietorship is taxed as personal income of the owner. He does not pay any super tax.
- Self employment. The sole trading business offers a large number of person’s employment in small means.
- Development of personal qualities. In sole trading business, the personal qualities of a proprietor like self reliance have full scope for development.
Disadvantages of Sole Proprietorship
- Burden of unlimited liability. The main disadvantage of sole proprietorship is the burden of unlimited liability. In case the claims of the creditors against the business exceeded, then the personal property of the owner are taken to pay business debts.
- Difficulties if expansion. One of the main demerit of sole trading business is that it faces difficulties to expanding the business in large scale, due to not availability of high resources, because every thing to managed by the owner himself.
- Limited managerial ability. In this type of business, the proprietor has to rely their own skill and managerial experience , which leads the owner to enable to perform all the duties and functions of management efficiently, limits the size of business according to the his capacity.
- Lack of continuity. The continuity or performance of a sole proprietorship sometimes difficult to maintain, due to the owner being dies, sick etc, leads the business may be closed.
- Loss in absence. If the owner of the business suffers sick very long, cause the business heavy loss in his absence.
- Absence of specialization. In the absence of specialization in this type of business, the owner is not in position to get the services of experts like accountants, salesman’s etc.
- Weak bargaining position. In this type of business both the parties have weak bargaining position compared to large business.
- Unsuitable for a developing business. In sole trading ship the business grows up, it is very difficult to owner to meet the requirements of expansion business.
In the developed and developing countries of the world, the large part of the business is carried on by sole proprietorship. The retailers, beauty shops, plumbers, printers, tailors, painters, doctors, computers, mobile shops etc all are the kinds of sole proprietorship. In America about 74% of all the business is carried out by this type of business. So, sole proprietorship plays a vital role in the economy of the each and every country of the world.