Advantages and Disadvantages of Sole Proprietorship

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Advantages:

Easy to Form and Wind Up:

• Easy and simple form of business organisation.

• No legal formalities are required to be observed.

• Business can be wind up any time if the proprietor so decides.

Quick Decision and Prompt Action:

• Nobody interferes in the affairs of the sole proprietary organisation.

• So, quick decision can be taken.

Direct Motivation:

• Entire profit of the business goes to the owner.

• Motivates the proprietor to work hard and run the business efficiently.

Flexibility in Operation:

• Easy to effect changes as per the requirements of the business.

• Not require many formalities

Maintenance of Business Secrets:

• Business secrets are known only to the proprietor.

• Not required to disclose any information.

• Not bound to publish his business accounts.

Personal Touch:

• Easy to maintain a good personal contact with the customers and employees.

• Helps to run business smoothly.

Disadvantages

Limited Resources:

• Not always possible to arrange sufficient funds.

• Proprietor has a limited capacity to raise funds for his business.

Lack of Continuity:

• Illness, death or insolvency of the proprietor can lead to closure of the business.

• So, continuity of business is uncertain.

Unlimited Liability:

Personal properties of the owner can also be used to meet the business obligations and debts.

Not Suitable for Large Scale Operations:

Resources and the managerial ability is limited, so, not suitable for large-scale business.

Limited Managerial Expertise:

A Single person may not be an expert in all fields like, purchasing, selling, financing etc.