SOLE PROPRIETORSHIP

Q) WHAT IS SOLE PROPRIETORSHIP? EXPLAIN ITS ADVANTAGES AND DISADVANTAGES?

                                                                            ANSWER

1. INTRODUCTION: Sole Proprietorship form of business is as old as civilization. This type of business is very common all over the world. The size of business is small and its formation is very easy. A person can think to start the business in the morning and he can become owner in the evening. There is no special law for this type of business person over 18 years of age can do any legal work to earn his living. The age limit may be 21 years under the Guardian Act. Another condition is that the owner must have sound mind. Moreover, an employee cannot start any business. The sole proprietorship is one-man show. The sole trader or proprietor owns and manages the whole work. He can contribute capital to run the business matters. The profit or loss is the reward of his abilities. One person is the owner, manager, financier, employer, seller and supplier. The success of this type of business depends upon experience, capital and hard labor.

2. DEFINITION:
    (i) Thomas J. Adams says that sole proprietorship is form of business that is owned and controlled by a single individual.
  (ii) Paul Preston says that sole proprietorship is a business enterprise that is owned and usually managed by one person.
   (iii) E.T. Elbourne says that sole proprietorship is a business initiated and operated by one individual who carries all financial and administrative responsibilities employing such assistants as may be necessary.

    It is clear that sole trader is a person who provides capital, manages the business, gets the rewards and bears the risk of loss.

3. CHARACTERISTICS:
    (i) Single Ownership: A trader is the owner of business. the owner provides necessary capital. The persons can start business like a repair shop, general store, dry cleaning and so on.
    (ii) Sole Management: The sole trader manages the whole business. the management depends upon his skill, experience, qualification and personal abilities.

    (iii) Small Capital: The sole proprietor provides the whole capital. At the start, owner brings money and other assets from private sources. The need for more capital can be met out of borrowed funds.
    (iv) Unlimited Liability: The liability of the sole trader is unlimited. The proprietor is liable to bear all the losses of the business. When all the resources of the owner are to be used to pay business debt, the liability becomes unlimited.
    (v) Small Size: The size of the business is very small. The sole trader can serves the customers in local area. The limited abilities and small capital do not allow to expand the size of the business. The small size is suitable for the customers who want personal attention.
     (vi) No Separate Entity: The owner and the business are not separate from each other. The life of the business linked with the owner. When the owner dies, the business comes to and end.
    (vii) Whole Profits: The owner of the business takes the whole share of the profit earned by the business. if there is loss, he himself is responsible for it. The effort and reward are linked with each other.
    (viii) No Registration: There is no special law for registration of sole proprietorship as compared to other types of business. The general law of the land is applicable on sole proprietorship.
    (ix) Complete Secrecy: The sole trader manages the whole business. The owner takes all the decisions alone. All the business secretes are kept by him. the accounts are not published in newspapers for public.
    (x) Natural Person: The sole trader is a natural person. The law provides equal chance to both men and woman to run lawful business. All people can perform the functions of management.
    (xi) Business Risk: The risk of loss is basic element of a business. There may be a period of bad trade. The change in technology is a threat to old business. The management bears this risk with courage.
    (xii) Lawful Work: The sole trader can start the business which is allowed by the government. Any work which is against the public interest cannot be allowed. The law of the country must be followed before starting any business. 

4. ADVANTAGES:

1. Easy Formation: the formation of sole proprietorship is easy. A person can think to start the business in the morning and he can set up the business in the evening.
2. Quick Decisions: One-man business is best to take quick decisions. The early decisions are helpful to avail business opportunities. The prompt decisions save business from losses.
   
3. Personal Contact: The Sole trader has direct link with customers. He is always to meet their demand. he receives their ideas about his product and service.
   
4. Business Secrets: The sole trader keeps all secrets with him. The accounts are not published for general public. The business secrets are transferable from a father to his son but are never disclosed before the general public.
5. Highly Flexible: The nature of the business is highly flexible. There are no legal formalities for changing the nature of the business. This business is very flexible due to small size.
6. Direct Incentive: The sole trader takes keen interest in the business. He works hard in order to maximize the profit. He receives the reward for hard labour from his business. It is a direct incentive for him to work with care for increasing the profit.
7. Low Management Expenses: The sole trader is the owner, manager and controller of the business. There is no need to hire experienced management. He personally looks after the whole business. In this way, he can reduce management cost.
8. No Legal Formalities: The sole proprieties is very popular because there are no legal formalities. There is no special law for it. All people are free to start their business.
9. Self-Employment: The sole-trade business creates employment for the owner. He does not become a burden on the society. He becomes an earning hand for his family.
10. Better Control Than Employees: The sole trader has right to control the business. He has the authority and responsibility at the same time. he cannot become lazy in controlling business.
11. Credit Standing: The sole trader has high credit standing among the creditors. The liability of sole trader is unlimited. The creditors can recover their claim from business and private property of the owner.
12. Equal Wealth Distribution: The sole-trader business is considered best for equal distribution of wealth in the economy. The division between the rich and the poor is eliminated.
13. Whole Profit: The sole trader is the owner of the whole profit. it is an incentive for him to work day and night. There is a reward for his hard labour. 
14. Smooth Working: The working of the business is smooth if the decisions are made by one person. The sole authority is sufficient to make early decisions for smooth working of the sole-trade business.
15. Easy Dissolution: The dissolution of sole proprietorship is very simple. The owner can sell his business if he thinks to do so. There is no legal ban on dissolution.
16. Low Tax Rate: The trader can pay income tax. if his income is more than taxable limit. The rate of income tax is low for sole trader as compared to other business units.

5. DISADVANTAGES:

1. Limited Capital: The trader provides capital from his sources. The simple owner cannot invest after a certain limit. The owner is unable to expand business due to limited capital.
2. Limited Ability: There is limit on the abilities of every person. One person is not able to do his duties round-the-clock. He is unable to perform all types of business activities.
3. Unlimited Liability: The sole trader has unlimited liability. His private property can also be used to pay business debts. The creditors have right over the business and private assets.
4. Loss of Income Source: The life of business is linked with the owner. The business comes to an end if the owner dies or becomes mad. The result is the end of income.
5. Less Discounts: A small business cannot purchase in bulk. The sole trader fails to get discount. The cost of purchase
6. Risk Involved: Where there is business, there is risk. A risk means fear of loss. The owner can suffer loss due to flood, fire and accident. There is a risk of income property and the whole business.
7. No Expert Services: A sole-trade is small in size. The professional and expert advisory services are very costly. A sole trader cannot hire professional employees to run the business.
8. Limited Growth: A successful business grows in size but a sole-trade business cannot expand due to less capital and limited ability of the owner. The sole trade business is not fit for growth.
9. No Market Control: Sole trader is not in a position to influence the market due to nominal share in the market. He has no bargaining capacity. The market forces are strong and a small business has no control over the market.
10. Wrong Decision: The decisions of sole trader are based on judgment and experience. There is no guarantee that all his decisions are fruitful. Any wrong decision can put the business into hardships.
11. Short Life: A sole-trade business has short life. The life of the business is linked with the owner. The business is not separate from the owner.
12. No Audit: A business accounts are not audited. The record does not depict true and fair position of business. There is difficulty in obtaining loans from others.
13. No Public Confidence: The sole-trade business cannot win the confidence of general public. In the absence of published accounts, the public cannot become aware of business activities. The public opinion is not favorable.
14. Lack of Proper Supervision: In sole trade, the owner looks after the business activities in general. At one time, he can attend one activity while orders are neglected. The lack of supervision may lead towards losses.
15. Danger of Insolvency: The sole trader does not keep proper accounts. The owner does not know the true financial position of his business. Thus the business dies due to carelessness.
16. Personal Skill Dies: The sole-trade depends upon person skill of the owner. His personal abilities are used to run the show. When the owner dies, the business is paralyzed. If the owner becomes mad, business becomes a burden on the family members.

CONCLUSION: The sole-trade is very popular. The merits are far superior than the demerits. That is the reason that such business is existing everywhere even in villages and small towns. The number of sole-trade business is the highest as compared to other forms of business units. This business is the need of the day so it is not possible to get rid of it.