Advantage and Disadvantage of Sole Proprietorships need to comply with licensing requirements in the states in which they are doing business as well as with local regulations and zoning ordinances. The paperwork and formalities, however, are substantially less than those of corporations, allowing sole proprietors to open a business quickly and with relative ease from a bureaucratic standpoint. It can also be less costly to start a business as a sole proprietor, which is attractive to many new business owners who often find it difficult to attract investors.
Advantages of a Sole Proprietorship
The advantages of sole proprietorship are also known as merits of sole proprietorship. It includes various points for the purpose of understanding the nature of a particular business of an individual person or entity. What are the advantages of sole proprietorship over the business:-
- Easy to form,
- Sole or Individual authority,
- Decision-Making Process,
- Gain total profits of the business,
- Direct Motivation,
- Direct relations with customers,
- Flexibility in operations of the business,
- Creation of employment facilities,
- Social benefits,
- It helps to develop their personal qualities.
- A sole proprietor has complete control and decision-making power over the business
- Sale or transfer can take place at the discretion of the sole proprietor
- No corporate tax payments
- Minimal legal costs to forming a sole proprietorship
- Few formal business requirements
The advantages of sole proprietor are also known as merits of sole proprietor and it includes:-
1.Easy to form
This is the first advantages of sole proprietorship and it means an individual person can easily establish the particular sole trade business. To do this sole business, a single person has to think first and then have to take it in a practical form. This is a huge advantage for a sole trader because it requires minimum capital to start the business and without any legal formalities, this business gets established. In simple words, The job of an individual sole trader is very simple like Purchase newspapers and selling them in the street. He also wears many hats like- do financial planning< follow the marketing procedure< Helps in development< Make strategies and tactics.
This is the second advantages of sole proprietorship and this means that there is only one single man in this business, which manages and control the total system of the sole trade business. He can put as much money as he can in his business because he has complete control over his business. This is also the best merit of sole proprietorship because a single individual can supervise his business alone because he is the king or manager of his business.
3. Decision-Making Process
This is the third advantages of sole proprietorship and it means that the procedure for selecting the best idea, work, and thought for increasing the engagement of the sole trader business. In this sole business, a single individual is an owner himself, due to which he takes all the legal decisions himself because he is the owner of his own business. This is a very important process in which a sole trader takes action very quickly and also solve the problems of the public because this is a stage at which a businessman has to select the best option for the business and achieve their goals also.
4. Gain total profits of the business
This is the fourth advantages of sole proprietorship and it means that every individual owner of the business is totally responsible for acquiring the income or profits of the sole trade business. An only single individual in this business pays capital, after which all the income or profits from him in his/her own. Similarly, he/she also bears all losses or risks of the business. For any person, his income is his biggest motivation, because of which he carries on to carry that business forward and is known as a successful sole trader (profit making is also a source of motivation for him).
6. Direct relations with customers
This is the sixth advantages of sole proprietorship and it means that the relation of a sole proprietorship is seen as a very bigger factor than its customers because he knows his customer tastes and preferences very well and also deals them very well. This merits of sole proprietorship indicate the relation between sellers and their customers because the direct relation of a seller or customer, their engagement capability is accumulated day by day and as well as a trustworthy relation is also created. The sole trader believes that in any way he has to satisfy his customer and has to attract himself because this will increase the goodwill rate of a seller (sole proprietor) in the market. The best thing I found in this advantage was that this relation reduces the gap of the distribution channel and also make the user-friendly environment.
7. Flexibility in operations of the business
This is the seventh advantages of sole proprietorship and it means that the business of a sole trader is small in size and the structure of its management is also small, due to which the business works in a flexible form and manner. Any small or big business, only to work for the customer needs and wants satisfaction. They also monitor the dynamic conditions of the market. In simple words, flexibility is the key of smoothness, without the flexibility no business or businessman can survive because the flexibility always helps to provide the working efficiency or potential to the businessman. Note:- The Merits of Sole Proprietor are also known as Pros of Sole Proprietorship.
8. Creation of employment facilities
This is the eighth advantages of sole proprietorship and it means a sole proprietor owns a specific business and helps to create the employment opportunities for the public in our society or community. Through this facility, a sole proprietor can expand his business, as well as some people source of income. In a sole proprietorship, the single owner of the particular business helps to supervise the employees of our corporate and provide various facilities like rewards, bonus, entertainment facilities after the process of placement.
9. Social benefits
This is the ninth advantages of sole proprietorship and it means a sole business owner is a king of his business. He has lots of freedom things related to his business, such as decision-making power, skill placement, efficiency development. A sole proprietor works very well for our society, such as it helps to develop social morality like self-reliance, self-determination, take action for the welfare of the society, and do extra hard work also. One more thing, the sole trader always happens to be an asset for his society, not a burden. Note:- The Merits of Sole Proprietorship are also known as Pros of Sole Proprietorship.
10. It helps to develop their personal qualities
This is the tenth advantages of sole proprietorship and it means a sole trader is called an individual identity. It helps to target focus on their business growth, self-development, and self-esteem individually. It is a business in which all the profits and non-profits decisions are to be taken by the sole trader, due to which his efficiency and capacity start enhancing day by day. With personal qualities, it will be able to promote his inner skills and will be able to deal with his sole proprietorship business by becoming like a good leader and superior. Personal qualities include sincerity, honesty, understanding, loyalty, trustworthy, intelligence. In any individual business, this is the second main advantage of a sole proprietorship because it helps to develop their working standards, qualities, balance, and attitude also. I hope your Advantages of Sole Proprietor concept have been cleared. If your concept is cleared, then please do share and comment.
Disadvantages of a Sole Proprietorship
The Disadvantages of Sole Proprietorship are also known as Demerits of Sole Proprietorship. It includes various drawbacks points related to the sole proprietor world. There are specific serious demerits of sole proprietorship which a sole individual trader has to observe in managing this form of business. These limitations/Disadvantages of Sole Proprietorship are:
- Unlimited Liability,
- Limited Financial Resources in Business,
- Lack of Continuity of Transactions,
- Limited Capacity of Individual,
- A huge competition,
- Technological Advancement,
- Difficulty in Raising to Capital,
- Lack of Managerial Experience,
- Everything controlled by an owner,
The disadvantages of sole proprietorship are also known as demerits of sole proprietorship and it includes:-
This is the first disadvantages of sole proprietorship and it means when a person in the business pays the debts by selling the assets in the business. The assets will be land and building, car, and so on. This condition shows unlimited liability.
2. Limited Financial Resources in Business
This is the second disadvantages of sole proprietorship and it means a sole owner of a sole proprietorship business have a limited financial capacity to manage because their business is small in size, no proof of continuity, limited work experience, and so on. As we know, investing and borrowing money for a single person is for a very limited time. The shortage of funds is a very big reason for the undergrowth of any sole proprietor. Due to this disadvantage, no sole trader can extend or improve his business because he lacks money.
3. Lack of Continuity of Transactions
This is the third disadvantages of sole proprietorship and it means is very difficult for a sole proprietor to keep our business continuity. If this sole Individual health worsens or dies, then his business may also be closed and sold to the public. In the business of sole trader, this is also a big disadvantage, which is why it does not reach its destination because continuity is the secret key to success and if the continuity will not be there, then they can not move forward his/her business. But in the case of a sole proprietorship, the continuity is difficult to maintain. Note: Demerits of Sole Proprietorship are also known as Disadvantages of Sole Trader.
4. Limited Capacity of Individual
This is the fourth disadvantages of sole proprietor and it means an individual person has limited skill and knowledge about everything because they have a limited amount of mind and capacity. An Individual is always thinking of expanding his business, but sometimes he does not have the ability to raise and run the business because they have limited capacity, efficiency, ideas, and these things go on ahead as a disadvantage for him. In any business, the efficiency is seen as a major factor and it helps in accelerating the growth of a particular business. A sole trader also has efficiency and capacity but this is in a limited form due to which they face a huge amount of difficulties or problems in enhancing the business.
5. A huge competition
This is the fifth disadvantages of sole proprietorship and it means in today era, everybody wants to be a sole proprietor and he has, due to which gradually its competition is also increasing. Do not know how many sole proprietors have to face negative issues due to such competition, and in the end, they should stop their business. In this point, the demerits of sole proprietor are totally fixed because if seen, it is also a huge disadvantage for a sole trader. Note: Disadvantages of Sole Proprietorship are also known as Disadvantages of Sole Trader.
6. Technological Advancement
This is the sixth disadvantages of sole proprietorship and it means in the business of any sole proprietor, it is a very difficult job to pay for technological advancement and this is not too affordable for them. Having any technological changes has a profound impact on a sole proprietor because he is not ready to take any such changes, nor does he have such a capability. If seen, any technological changes in the business have a lot of effect on his sales volume and somewhere he has to face loss too. You believe that if any sole trader wants to face with technological changes, then he keeps monitoring the condition of the market and continue to collect funds beforehand to manage the upcoming tasks and changes.
7. Difficulty in Raising to Capital
This is the seventh disadvantages of sole proprietorship and it means when a person thinks of starting a business, he first comes to mind that where I will bring the funds from? So, funds are available in many places to run a business such as through public shares, through financial institutions, personal savings, investors, and so on, but in the sole proprietorship business, a sole proprietor only has his personal savings. Funding for a sole trader is a very difficult task because he does not get a loan from the bank quickly and he cannot issue a share in the market. He has to withdraw the capital from his personal savings, or otherwise borrow from his friends and family members. Note: Disadvantages of Sole Proprietorship are also known as Disadvantages of Sole Trader.
8. Lack of Managerial Experience-
This is the eighth disadvantages of sole proprietorship and it means in a sole proprietorship business, a sole trader does not have much experience to do any work because he has never done that work before. A sole proprietor sees all the business activities whether it is related to production or marketing or selling but big business has put a separate manager to handle all the departments so that he can manage that work well. That why a sole proprietor is not able to become a good manager because he does not fit the suitable in any department.
9. Everything is controlled by an owner
In this point, the sole proprietor defines the form of individuality i.e., every type of business activities are controlled or managed by himself, no one person can help them for improving their business tasks and achieve its goals also.
In this disadvantage, the sole proprietor pays taxes individually because all forms of capital are invested by him and all documentation papers are registered by the name of him.