Sole Proprietorship: Meaning, Characteristics, Advantages and Limitations

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Meaning of Sole Proprietorship

Sole means Single and Proprietorship means Ownership. It means only one person or an individual is the owner of the business. The individual who owns and runs the Sole Proprietorship business is known as ‘Sole Proprietor’ or ‘Sole Trader’.

Characteristics of Sole Proprietorship

Characteristics of Sole Proprietorship

Characteristics of Sole Proprietorship

  • Ease of formation: Ease of formation implies minimum of legal and other formalities.

  • Single Ownership: A single individual always owns sole proprietorship form of business organization.

  • No Sharing of Profit and Loss: Nobody shares any loss and profit in business with Sole proprietor.

  • One man’s Capital: The capital required by a sole proprietorship form of business organization is totally arranged by the sole proprietor.

  • One-man Control: In a sole proprietorship business the controlling power always remains with the owner. The owner takes all decisions for the business.

  • Unlimited Liability: The liability of the sole proprietor is unlimited.

Advantages of Sole Proprietorship

Advantages of Sole Proprietorship

Advantages of Sole Proprietorship

  • Easy to form and wind up: A sole proprietorship form of business is very easy to form.

  • Direct Motivation: The profits earned belong to the sole proprietor alone and he bears the risk of losses as well.

  • Quick Decision and Prompt Action: The Sole Proprietor alone is responsible for all decisions. Sole Proprietor becomes easy to take quick and prompt action on the basis of decision taken.

  • Better Control: In Sole proprietorship business, the Sole Proprietor has full control over each and every activities of the business.

  • Maintenance of Business Secrets: In the case of sole proprietorship business, the proprietor is in a very good position to keep his plans to himself since management and control are in his hands.

  • Close Personal Relation: In Sole Proprietorship business, The Sole Proprietor helps in maintaining close and friendly relations with the employees and thus, business runs smoothly.

  • Provides Self-employment: Sole proprietorship form of business organization provides self-employment opportunities to the people.

Limitations of Sole Proprietorship

Sole Proprietorship Limitations

Sole Proprietorship Limitations

  • Limited Capital: The owner’s own funds and borrowed funds become insufficient to meet the requirement of the business for its growth and expansion.

  • Lack of Continuity: The existence of sole proprietorship depends on the owner.

  • Limited Size: In sole proprietorship form of business organization there is a limit beyond which it becomes difficult to expand its activities.

  • Lack of Managerial Expertise: A Sole Proprietor may be an expert in administration, planning, etc., but may be poor in marketing.

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