Sole Proprietary Business; A sole-trade business has a limited scope because of the limitations of the owner. Since only one person invests his funds, so the funds may certainly be limited. The managerial capacities of the proprietor are also limited. He has to take all the decisions himself. He will try to keep the business only to that scale which can remain in his personal supervision.
The liability of the sole-trader unlimited so he will not do anything which may be risky. When a business is expanded, then the risk is bound to be there, the sole-trader will be hesitant of increasing his scale of operations.
Despite various difficulties and limitations, the sole-trader will certainly try to expand he business. There are two alternatives before him: (1) Adding a partner (2) Employing a servant.
The pros and cons of both the alternatives are discussed as follows:
Adding a Partner
When a new person is added as partner, then it becomes a partnership firm instead of remaining a sole-trade concern. The new partner brings in his resources and experience which can help in the expansion of business.
Advantages of Adding a Partner
1. More Capital. The partner brings in capital which can remain permanently in the business. In a sole-trade concern the investments are limited to the resources of one person only and on the admission of a partner the resources of two persons are combined.
Additional funds can also be be raised through loans but this will be a temporary source and interest lability of the business will also increase. So it will be better to add a new partner when more funds are needed.
2. Managerial Ability. The managerial ability of one person is limited. The sole trader is the final authority in every decision; so he will personally decade everything. If the business needs expanded than there must be a sharing of managerial responsibility.
This can be possible by a a manager too but his role will be limited because the final decision will have to be than by the proprietor. If managerial needs are more, then the addition of a partner will be more suitable. The partner will be able to take final decisions; so the managerial responsibility well be shared by taking a new partner.
3. Sharing of Risk. The liability of a sole-trader is unlimited : so he will have to face all business risk by himself. When a partner in added, then the risk is shared by both the partner. The fear of risk, does not, sometimes, allow the sole-trader to expand his business because will more risk also. When expansion is done by adding a partner, the business risk will be shared among two persons.
Disadvantages of Adding a Partner
1. Division of Profits. When a partner is added, then business profits will be shared by persons, in sole trade business, all profits belong to the owner and he takes more interest in the business. On the other hand, if a manager is added instead of a partner, then the question of sharing profits does not arise. The sharing of profits will certainly reduce the interest of proprietors.
2. No Retention of Business Secrets. A sole trader can keep all business secrets to himself. When a partner is added, then all secrets have to be shared with him. There may be a situation when relations with partner become strained; then the secrets can be passed on. On the other ha assistant is employed, then business secrets are not shared with them and there is no fear of passing them out.
3. Delay in Decision Taking. When a partner is added in a business, then decisions are taken with his consent. All business decisions have to be taken with costumes the decisions are not taken with the consent of a partner, then there is a fear of business being dissolved.
Atty partner can ask for the dissolution of a firm. The decision-taking process is delayed because it may take time to come together and then agreeing for a particular decision.
Employing a Servant
The employment of a servant is the other alternative in an expanding sole-trade business. One person cannot supervise each and every thing. The ones the help of controlling and managing the business property. A manager burden of the proprietor. The assistant works in the sphere assigned to him and final authority is retained by the proprietor. This alternative too has some pros and cons.
Advantages of Employing a Servant
A solo-trade business can be expanded by employing some person und of this system are discussed as follows:
1. The sole-trader is able to shall some of his responds t look after the work assigned to him and will work under the overall control of the owner.
2. The assistant will be paid e salary and the pool belong to the one then he will have a share in profit. It will be better to go the holy of a point taking a partner who will share profits of the business.
3. The proprietor will be able to retain business secrets because he will not required to share them with his employer. In some concerns the trade or business policies is very important. In such cases the employment of an assistant will be useful.
4. There will wat be any delay in taking decisions because one person is the final authority in the business. The proprietor counselling of his employees but final decision will remain with him.
disadvantages of Employing a Servant
1. The employment of a servant will not help in bringing more funds to the business as can be possible when a partner is added.
2. A servant will not take as much interests can be taken by the proprietor or a partner. The servant will be paid a salary; so he will not be much interested in increasing the profitability of the A partner, on the other hand, will share the profits of the business, so he will certainly take keen interest in the working of the business.
4. There is also a difficulty in finding a suitable person for employment. If a wrong person is employed, then it will create problems instead of solving them. A sole-trader has to consider many factors while taking a decision about adding a partner or employing a servant.
Both the alternatives have advantages as well as disadvantages. The type of business, need of expansion, capital and managerial requirements of the expansion, state regulations, tax liability etc. will also be considered while taking this type of decision.