Sole Proprietorship

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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.

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It is wholly owned by a single person. This owner is called a sole proprietor.

Image Credit: Annie Spratt on Unsplash.

Features of Sole Proprietorship 

  1. It is owned by one person, hence the name one man business.
  2. The liability of the proprietor is unlimited.
  3. The proprietor provides the capital of the business.
  4. The motive of its formation is to make profit.
  5. It is not a legal entity.
  6. All the profits belong to the business owner, in which case is a single person.

Advantages of Sole Proprietorship

  1. It requires small capital.
  2. It is easy to establish.
  3. Quick decisions are taken.
  4. It is easy to manage.
  5. It attracts lesser tax.
  6. It can be combined with other occupations.
  7. The owner formulates policies all alone.
  8. Cordial relationship exists between the owner and the employees.
  9. There is existence of privacy in the business.
  10. No submission of balance sheet to the registrar of companies.
  11. It is easy for the owner to withdraw his assets. 

Disadvantages of Sole Proprietorship 

  1. He bears all risks alone.
  2. He bears all losses alone.
  3. The business is not a legal entity.
  4. Lack of enough capital.
  5. Limited expansion.
  6. Limited ability.
  7. The exit of the owner may end the business.
  8. Inability to face competition.
  9. Limited scope of decision and policy making.
  10. No retirement age for the owner, leave, or period of rest.
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