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Disadvantages of Sole Proprietorship – My Study Latest Post
1. Limited Resources. The resources of a sole proprietor are limited. He makes investments from his family sources only. There is a limit to which a single person can invest. He tries to raise finances from financial institutions also. These institutions want securities for these loans.
The sole- trader cannot offer much security, so he does not get much help from financial institutions. The capacity for expanding business operations is limited for want of resources, even when there is a scope for expansion. Other forms of ownership are better placed than the sole proprietor for raising financial resources.
2. Limited Managerial Ability. One person may not be expert in each and every function of the business. He will not able to devote sufficient time for all types of activities. He will have to depend upon paid employees. The employees may not take as much interest as the owner himself can take. The managing capacity of the proprietor day limited.
In the present competitive world, complexities of managerial jobs are increasing everyday. The sole proprietor may not be able to use the services of experts for want of resources will not allow him to use the services of professionals people. Limited managerial capacity will hinder the growth of concern.
3. Unlimited Liability. The liability of a sole proprietor is unlimited. His private property can also be assigned for meeting business losses. A loss in business may deprive him of his private assets also.Unlimited liability also restricts his working. He tries to be cautious in taking risks. It acts as a detriment to the growth of business activities.
4. Uncertain Continuity. The business continues as far as sole proprietor is there. In case of his mobility or death, the business is discontinued. The successors of the sole proprietor may not have an aptitude or ability to continue in the business. The closure of a business will cause Inconvenience to the consumers. It will also result in social loss.
5. Limited Scope of Employees. A sole-trader cannot attract trained and qualified persons Tor reasons of limited career opportunities. Moreover, the continuity of sole trade business being uncertain, the employees also remain under psychological pressure. A sole proprietor cannot offer financial incentive to employees because his activities are on a small scale. The employees will try to join good concerns whenever an opportunity arises.
6. No Large Scale Economies. A small scale concern cannot economies in purchases, production and marketing. A large scale enterprise will be able to have favorable terms of purchasing and selling of goods. In a sole trade concern overhead expenses are also more. So this type of concern cannot enjoy the benefits of large scale economies.
7. More Risk Involved. A sole proprietor is to take all decisions by himself. So there is a possibility of taking wrong decisions. In other forms of organizations, the decisions are taken by more than one person. So the possibility of mistakes and wrong decisions is minimized. Lack of counselling may create difficult situations.