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SOLE PROPRIETORSHIP
INTRODUCTION: Sole proprietorship is the oldest form of organization. It is as old as the civilization itself. Historically, the business stated with this form of organization. It is the simplest and natural type of organization. Sole proprietorships also called Individual proprietorship, sole trader ship or one man business. DEFINITION: The definitions of the sole proprietorship are as follows: According to D.W.T Stafford: It is a simplest form the business which I owned and controlled by one man. According to S. Tippets: The proprietorship is that form of business organization which is owned, managed and controlled by a single individual who receives all profit and risks all his property in the success or failure of the enterprise. According to Paterson and Plowman: a sole proprietorship is a business unit whose ownership and management are invested by one person. The individual assumes all risk of loss or failure of the enterprise and received all profits from its successful operations. Features of Definition: Following are the features. (1) It is owned and managed by single person. (2) He will enjoy whole profit. (3) He will bear whole loss. ADVANTAGES OF SOLE PROPRIETORSHIP Following are the advantages of sole proprietorship. (1) Easy to start: It is easy to start an individual proprietorship. it does not require much consultation or legal formalities. Any body can start this type of business according to his capacity & ability. Sole Authority: The proprietor, being the sole authority, takes decision of planning, organizing, staffing coordinating, controlling and directing of the business unit. Sole Claim on profit: The proprietor is the sole owner of the profit of the firm and is also personally responsibility for the losses.
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DISADVANTAGES OF SOLE PROPRIETORSHIP Following are the disadvantages of sole proprietorship. (1) Unlimited Liability: Individual proprietorship, the entrepreneur is fully responsible for his profit or loss. He fears that his own capital may be lost in cause of loss. Therefore, he hesitates to take certain decisions and risk because of his unlimited liability. Small Scale Production: Due to shortage of capital, difficulty in supervision and in expansion of business to far off places, sole trader cannot do large scale production. Lack of Continuity: The continuity or permanence of a sole proprietorship is normally difficult to maintain. If the proprietor dies, falls sick, is disabled and there is no suitable successor to him, the business is adversely affected. The business may be closed, sold or liquidated. Loss in Absence: A sole proprietorship has to suffer from the long illness of the proprietor. The business in his absence comes to a standstill. Absence of Specialization: The sole trader is in a position to hire the services of experts like qualifies accountants, salesmen etc. the business therefore is deprieved of the services of experts. Weak Bargaining position: The sole trader both as a buyer and seller has weak bargaining position compared to big business units. Unsuitable for a developing business: When a business grows in size, it cannot meet the needs of expanding business. High cost of production: Being a small scale production, the entrepreneur cannot reap the benefits of the economies of large scale production. It results in the high cost of production and higher prices. All makes an adverse effect on the demand for his produce. Difficulty in Credit: The banks and other financial institutions hesitate to lend/advance loan to sole proprietor. So either they do not get loans or can get loan on very high rate of interest. Dependence of personal abilities: One man feels handicapped in looking after all the affairs of business so he has to depend on his personal qualities/abilities. Erratic decisions: Single man has to make all the decision himself. He does not consult others. Many of his decisions are erratic which adversely affected his business. Over worked: The owner being the organizer performs a wide range of activities some of which he may have no experience. He is, therefore, very much over worked.
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