SOLE PROPRIETORSHIP - MEANING, FEATURES, ADVANTAGES AND DISADVANTAGES

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A sole proprietorship is a business organization that is owned, financed, managed, and controlled by an individual.

More specifically, a sole proprietorship is a form of business that is owned, financed, and run by a single person called the sole proprietor or sole trader.

The sole proprietor has unlimited liability as he is personally liable for all the losses and debts of the business. He receives all profits and bears all losses alone.

Sole proprietorship, also known as, sole trading, a one-man business, is easy to set up as you are only required to register your business name and obtain local licenses to begin operation.

For this reason, a sole proprietorship is the most commonest form of business organization in the world.  It has also been called the "oldest form of business"

Features of a sole proprietorship.

1.  Not a legal entity: in the eyes of the law, the sole proprietorship is not distinct from its owner. 

Hence, the business can not sue and be sued in its name, enter into any contract, etc.

2. Unlimited liability: The sole trader is personally liable for the debt and liabilities of the business. 

In the event of liquidation, if the asset of the business does not cover its liability, the personal property of the sole trader may be used to settle the business debt.

3. Bears risk alone: All business risks are borne by the sole proprietorship.

4. Source of capital: The capital used to run the business is provided solely by the sole trader.

5. Decision-making: The business is controlled by the sole proprietor. He, therefore, make all business decision without consulting anyone.

6. Commonest form of business ownership: Sole proprietorship is the commonest form of business ownership and organisation, especially in Africa.

7. Profit motive: Sole proprietorship is sent up for the purpose making profit.

Advantages of a sole proprietorship

1. Easy to set up and wind up: Sole proprietorship is very easy to set up. This is because anyone wishing to start a sole proprietorship just needs to register his business name.

If things go wrong, the sole proprietor can end the business by simply closing the shop and business

2. Tax advantage and enhancement: filing tax for a sole proprietorship is typically easier than a corporation. A sole proprietor would simply file an individual income tax return.

Plus, the tax paid by a sole proprietorship is low when compared to other business organizations as a sole proprietor.

3. Reduced government regulation:  of all forms of business organization, a sole proprietorship is the least regulated form of business organization. 

Though they do comply with local licenses requirement and regulations, they, however, do not require much paperwork like a corporation. Also and like I said before, they do not pay corporate tax.

4. Quick decision-making: Since the owner does not consult anyone before making a business decision, decision-making in a sole proprietorship is taken and affected quickly.

5. Require small capital: Sole proprietorship can be established with little capital. This explains why it is the commonest of business organizations.

6. Enjoys profit alone: In exchange for assuming all business risk and responsibility, the sole proprietor enjoys all profit alone.

7. Enhanced performance: The sole proprietor enjoys personal relationships with staff and customers, which can help enhance staff and customer commitment to the business

Disadvantages Of Sole Proprietorship

1. life span: The life span of the business is entirely dependent on the sole proprietor.

The death, incapacitation, retirement of the sole proprietorship may well be the end of the business.

2. Bears risk alone:  All business risks in a sole proprietorship are entirely burned by the sole proprietorship. What this means is that bears lose alone

3. Unlimited liability: Unlike LLC, the sole proprietor is personally liable for all the debts and obligations of the business.

In the event of liquidation, if the asset of the business does not compensate for its liability, the personal property of the sole trader may be used to settle the business debt.

4. Difficulty in raising capital: Raising capital for a sole proprietorship is very task.

This is because many financial institutions would grant loans to a financially stable corporation than give a sole proprietorship whose life cycle is highly dependent on its owner 

4. Limited expansion possibility: one drawback of a sole proprietorship is its limited expansion possibilities.

This can be specially attributed to the limited capital problem a sole proprietorship is also faced with. Remember that no business can expand production activities if it does not have enough funds.

5. Poor Decision making: Unlike a partnership business where joint decisions are taken, decision-making in a sole proprietorship is solely done by the sole proprietor. 

And going by the popular dictum that "two heads are better than one", the decision taken by a sole proprietorship may not be the best or at least, will be of lower quality than that partnership business

6. Poor management ability:  In most cases, the sole proprietor is entirely involved in the management of the business. 

Hence, better management capability that emanates from the combination of different skills of many people is not accessible to the sole proprietor.

7. Overwhelming time commitment: The sole proprietor faces the stress of time management and barely had time to relax because the operation depends business depends largely on him.

In effect, the success of the business depends largely on the time commitment of the sole proprietorship.

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