Meaning Of Sole Proprietorship: Features And Disadvantages

Table Of content

1. Sole Proprietorship
2. Features Or Characteristics Of Sole Proprietorship
3. Sources Of Capital Of A Sole Proprietorship
4. Advantages Of Sole Proprietorship
5. Disadvantages Of Sole Proprietorship
6. Reasons For The Continued Existence Of Small Scale Business Unit

Sole Proprietorship: Sole proprietorship may be defined as a form of business Enterprise own, financed and managed by one person with the primary aim of maximizing profit.

The sole proprietorship, also popularly referred to as one-man business, is the oldest and most common type of business organisation. It is an unincorporated business organisation. It is an unincorporated business unit owned by one person who provides the capital, runs the business and undertakes the risk and profit of the business alone.

Example of sole proprietorship are found in primary Industries like farming, fishing etc. In secondary Industries that small-scale manufacturing, printing and majoring in tertiary Industries like lawyers, doctors, tailors, barbers, hairdressers, musicians, Traders and so on.

Features Or Characteristics Of Sole Proprietorship

1. Ownership: The business Enterprise is owned by one person.

2. Objective: The main objective of the one-man business is to make profit.

3. Source Of Capital: The capital required to set up and run the business is provided by the proprietor.

4. Liability: The sole proprietor has unlimited liability.

5. Legal Entity: It is not a legal entity as the owner is not separated from the business.

6. Management: The business is controlled and managed by the sole proprietor himself.

7. Life Span: The life span depends on the owner. The Enterprise can fold up anytime.

Sources Of Capital Of A Sole Proprietorship

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The sole proprietor obtain his capital from the following sources:

1. Personal Savings: A sole proprietor can obtain capital from his previous savings; he can use his personal income as initial capital.

2. Loan From Friends: He can also raise capital by borrowing from friends and relatives.

3. Trade Credit: They can obtain capital by purchasing goods on credit from the suppliers, producers or wholesalers.

4. Loan And Overdraft From Banks: The sole proprietor can also obtain capital from financial institutions. This can be in form of a loan or an overdraft.

5. Grants And Loans From Government: Government can release capital to its agencies in support of certain programs. They can also be used on phone in form of loans to unemployed graduates and others to set up a small scale business. This constitutes a source of capital for a sole proprietor.

Advantages Of Sole Proprietorship:

1. It Involves Small Capital: The sole proprietorship requires very small capital to set up.

2. It Is Easy To Establish: One man business is easy to establish because of the small capital requirement and it may not involve much protocol or procedure when setting up the business.

3. Taking Of Quick Decisions: Quick decisions are easily taken by the sole proprietor alone without the concept of other workers in the organisation.

4. It Is Easy To manage: The sole proprietor can easily manage the operations of the Enterprise without expert management from outside.

5. It Requires A Small Operation: The sole proprietors house fragmented market in West Africa and as such, large operations would not be necessary.

6. All Profits Belong To The Owner: All the profits derived from the business belong to the owner of the business because the capital outlay or provision came from him.

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7. It Can Thrive In All Business Environment: The sole proprietor can thrive in all business environment, be it through rural or urban environment because of its simplicity in establishment.

8. General Privacy In Conducting Business Affairs: The sole proprietor can keep his business matters secret. He is not required to publish his account or submit an audited balance sheet to the registrar of the companies.

Disadvantages Of Sole Proprietorship

1. Problem Of Continuity: In the event of the death of the owner the business may also die with him, especially when there is no successor to take over from him.

2. Inadequate Capital: The sole proprietor is always faced with inadequate capital because of the small size of his business and his inability to source funds aside his business.

3. He Bears All The Risk Alone: The disc required in operating the business is borne solely by the owner. If the business is successful he rejoices but when it fails he suffers it alone.

4. It Has Unlimited Liability: In the event of business failure, his access and properties have to be sold to pay his creditors.

5. It Is Not A Separate Legal Entity: In law there is no difference between the owner of the sole proprietor and the business itself. The business cannot Sue or be sued in its own right.

6. He Lacks Specialization: The owner of is personally involved in every section of the business. He was very hard; he may not take public holidays, and scarcely have rest. In most cases, when he is absent, the business may close down temporary be.

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7. There Is Limitation In Expansion: The sole proprietorship suffers from expansion, both in ideas and business, as a result of inadequate capital.

Reasons For The Continued Existence Of Small-Scale Business Units:

1. Small Capital Requirement: The small-scale business requires small capital to set up.

2. Easy To Establish: The small-scale business units are easy to set up or establish since no formalities are required.

3. Provision Of Incentive For Hard Work: There is always incentive for hard work since ownership instill pride and drive for Success.

4. They Enjoy Customers Loyalty: Small-scale business unit always enjoy customers loyalty and good relationship, which ensures continued patronage.

5. Ability To Change Policies: The policies of the business can be easily and quickly changed to meet the changing needs of the customers.

6. Low Level Of Risk: The small scale business outfit usually involve low level of risk.

7. Low Overhead Cost: The overhead cost involved in small-scale business is usually really low.

8. They Meet The Special Needs Of Customers: Small-scale business missed the peculiar needs of customers by keeping varieties of goods from which customers can choose.

9. Availability Of Goods In Remote Areas: A small-scale business also ensures that goes are distributed to remote areas.

10. Some Serve The Need Of Larger Firms: Many small scale businesses have the need or provide the requirements of larger firms.

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