Sole trade Business Features, Advantages and Disadvantages
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SEMILIGUDA J R COLLEGE, SEMILIGUDA
Sole trades Business: Features, Advantages and
Disadvantages!
Proprietorship (also called sole trade
organisation) is the oldest form of business ownership in India. In a
proprietorship, the enterprise is owned and controlled by one person. He is the master of his show. He sows, reaps, and harvests the output of this effort. He
manages the business on his own. If necessary, he may take the help of his
family members, relatives and employ some employees.
A sole proprietorship is the simplest and
easiest to form. It does not require legal recognition and attendant
formalities. This form is the most popular form in India due to the distinct
advantages it offers. William R. Basset opines that “The one-man control is the
best in the world if that man is big enough to manage everything”.
Main Features:
The main features of proprietorship form of business can be
listed as follows:
1. One Man Ownership:
In a proprietorship, only one man is the owner
of the enterprise.
2. No Separate Business
Entity:
No distinction is made between the business
concern and the proprietor. Both are one and the same.
3. No Separation between
Ownership and Management:
In proprietorship, management rests with the
proprietor himself/herself. The proprietor is a manager also.
4. Unlimited Liability:
Unlimited liability means that in case the
enterprise incurs losses, the private property of the proprietor can also be
utilized for meeting the business obligations to outside parties.
5. All Profits or Losses
to the Proprietor:
Being the sole owner of the enterprise, the
proprietor enjoys all the profits earned and bears the full brunt of all losses
incurred by the enterprise.
6. Less Formalities:
A
proprietorship business can be started without completing many legal
formalities. There are some businesses that too can be started simply after
obtaining necessary manufacturing licence and permits.
Advantages:
The
various advantages that proprietorship form of business offers are as follows:
1. Simple Form of Organisation:
Proprietorship is the
simplest form of organisation. The entrepreneur can start his/her enterprise
after obtaining license and permits. There is no need to go through the legal
formalities. For starting a small enterprise, no formal registration is
statutorily needed.
2. Owner’s Freedom to Make Decisions:
The owner, i.e. the
proprietor is free to make all decisions and reap all the fruits of his labour.
There is no other person who can interfere or weigh him down.
3. High Secrecy:
Secrecy is another major advantage offered by
proprietorship. This is because the whole business is handled by the proprietor
himself and, as such, the business secrets are known to him only.
Added to it, the proprietor is not bound to
reveal or publish his accounts. In present-day business atmosphere, the less a
competitor knows about one’s business, better off one is. What the competitors
can make is guesstimates only.
4. Tax Advantage:
As compared to other forms of ownership, the
proprietorship form of ownership enjoys certain tax advantages. For example, a
proprietor’s income is taxed only once while corporate income is, on occasions
taxed twice, say, double taxation.
5. Easy Dissolution:
In proprietorship business, the entrepreneur
is all in all. As there are no co-owners or partners, therefore, there is no
scope for the difference of opinion in the case the
proprietor/entrepreneur wants to dissolve the business. It is due to the easy
formation and dissolution, the proprietorship is often used to test the business
ideas.
Disadvantages:
The proprietorship form of
ownership suffers from some disadvantages also.
The important ones are:
1. Limited Resources:
A proprietor has limited resources at his/her
command. The proprietor mainly relies on his/her funds and savings and, to a
limited extent, borrowings from relatives and friends. Thus, the scope for
raising funds is highly limited in proprietorship. This, in turn’ deters the
expansion and development of an enterprise.
2. Limited Ability:
Proprietorship is characterised as a one-man
show. One man may be an expert in one or two areas, but not in all areas like
production, finance, marketing, personnel, etc. Then, due to the lack of
adequate and relevant knowledge, the decisions are taken by him be imbalanced.
3. Unlimited Liability:
Proprietorship is characterised by unlimited
liability also. It means that in case of loss, the private property of the
proprietor will also be used to clear the business obligations. Hence, the
proprietor avoids taking risk.
4. Limited Life of
Enterprise Form:
The life of a proprietary enterprise depends
solely upon the life of the proprietor. When he dies or becomes insolvent or
insane or permanently incapacitated, there is very likelihood of closure of
enterprise. Say, the enterprise also dies with its proprietor.
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