What do you understand by a sole proprietorship form? Explain its merits and limitation.
What do you understand by a sole proprietorship form? Explain its merits and limitation.
Sole proprietorship organisation also called sole trade or single entrepreneurship. It is the oldest and simplest form of organisation. According to L.H. Haney — “The individual entrepreneurship is the form of business organisation on the head of which, stands an individual as the one, who is responsible, who directs its operations, who alone runs the risk of failure".
So, a sole proprietorship form of organisation is the one in which a single person/owner carries on business exclusively. He takes all the decisions and receives all the profits and takes responsibility for losses.
MERITS OF SOLE PROPRIETORSHIP
(1) Ease information and closure: Sole Trading is the only form of organisation where no legal formalities are required to be performed in setting up and closing the business. Sole trader can close the business whenever he desires.
(2) Direct Incentive: In this form of organisation there is a direct relationship between the efforts and rewards which means if proprietorship puts extra efforts then profit increases and proprietorship gets extra income, which motivates him to work extra.
(3) Personal Touch : In sole proprietorship, generally all the work is carried out by the owner himself so he can maintain direct contacts with the customers and employees and can make changes in the products according to the demands and expectations of the customer.
LIMITATIONS
(a) Limited Liability : The liability of a sole trader is unlimited. His private property can also be assigned for meeting the business loss. Unlimited liability also restricts his working. It acts as a deterrent to the growth of his business activities.
(b) Limited Resources : A sole trader depends entirely upon his wealth or borrowings. There is a limit to the credit raising capacity of a single person. This reduces the scope for expansion and growth of business.
(c) Limited Managerial Skills : In this form of organisation, all the activities are performed by a single individual. A single individual cannot be expert in all the fields. He may be a good sales person but not a good manager. So his managing capacities are limited. Moreover, his limited resources will not allow him to use the services of professional people. Limited managerial capacity will hinder the growth of the business.
Sole proprietorship organisation also called sole trade or single entrepreneurship. It is the oldest and simplest form of organisation. According to L.H. Haney — “The individual entrepreneurship is the form of business organisation on the head of which, stands an individual as the one, who is responsible, who directs its operations, who alone runs the risk of failure".
So, a sole proprietorship form of organisation is the one in which a single person/owner carries on business exclusively. He takes all the decisions and receives all the profits and takes responsibility for losses.
MERITS OF SOLE PROPRIETORSHIP
(1) Ease information and closure: Sole Trading is the only form of organisation where no legal formalities are required to be performed in setting up and closing the business. Sole trader can close the business whenever he desires.
(2) Direct Incentive: In this form of organisation there is a direct relationship between the efforts and rewards which means if proprietorship puts extra efforts then profit increases and proprietorship gets extra income, which motivates him to work extra.
(3) Personal Touch : In sole proprietorship, generally all the work is carried out by the owner himself so he can maintain direct contacts with the customers and employees and can make changes in the products according to the demands and expectations of the customer.
LIMITATIONS
(a) Limited Liability : The liability of a sole trader is unlimited. His private property can also be assigned for meeting the business loss. Unlimited liability also restricts his working. It acts as a deterrent to the growth of his business activities.
(b) Limited Resources : A sole trader depends entirely upon his wealth or borrowings. There is a limit to the credit raising capacity of a single person. This reduces the scope for expansion and growth of business.
(c) Limited Managerial Skills : In this form of organisation, all the activities are performed by a single individual. A single individual cannot be expert in all the fields. He may be a good sales person but not a good manager. So his managing capacities are limited. Moreover, his limited resources will not allow him to use the services of professional people. Limited managerial capacity will hinder the growth of the business.
