In this post, we shall look briefly into the meaning, features, advantages, and disadvantages of sole proprietorship. Sole proprietorship is a form of business units. Others are partnership, public and private limited liability companies, public enterprises, and cooperative societies. At the end of this lesson, you should be able to:
- define sole proprietorship;
- identify the features of sole proprietorship; and
- examine the advantages and disadvantages of sole proprietorship.
Meaning of Sole Proprietorship
A sole proprietorship is a business organisation established, owned, financed and controlled by one person with the aim of making profits.
It is wholly owned by a single person. This owner is called a sole proprietor.
Features of Sole Proprietorship
- It is owned by one person, hence the name one man business.
- The liability of the proprietor is unlimited.
- The proprietor provides the capital of the business.
- The motive of its formation is to make profit.
- It is not a legal entity.
- All the profits belong to the business owner, in which case is a single person.
Advantages of Sole Proprietorship
- It requires small capital.
- It is easy to establish.
- Quick decisions are taken.
- It is easy to manage.
- It attracts lesser tax.
- It can be combined with other occupations.
- The owner formulates policies all alone.
- Cordial relationship exists between the owner and the employees.
- There is existence of privacy in the business.
- No submission of balance sheet to the registrar of companies.
- It is easy for the owner to withdraw his assets.
Disadvantages of Sole Proprietorship
- He bears all risks alone.
- He bears all losses alone.
- The business is not a legal entity.
- Lack of enough capital.
- Limited expansion.
- Limited ability.
- The exit of the owner may end the business.
- Inability to face competition.
- Limited scope of decision and policy making.
- No retirement age for the owner, leave, or period of rest.