Advantages of Sole Proprietorship on My Study
1. Easy in Formation. Sole-proprietorship is the only form of organization where no legal formalities are required to be performed. Anybody wishing to start a sole-trade concern can do so without loss of time. This business is absolutely free from legal formalities. On the other hand, if a Joint stock company is to be formed it needs the services of experts to get it incorporated, and involves a lot of labor and money.
2. Better Control. In this form of organization one man is responsible for all types of activities He controls all functions of the business. He himself takes decisions at appropriate time. The authority and responsibility lie with one man. He cannot afford to be complacent in taking decisions.
If the responsibility is divided, then there can be a possibility of shifting obligations to other persons (Everybody’s responsibility becomes nobody’s responsibility). In sole-trade business there is no such difficulty. The owner is all in all and he cannot escape his work. The business is controlled in an effective way.
3. Flexibility in Operations. A sole-proprietorship concern is generally run on a small scale basis. In case a change in operation is required, it can be possible without involving much expenditure Even if a new line of production is to be taken up, it will not involve much efforts. On the other hand, if the operations are on a large scale, then it becomes difficult to change the method of production.
A small scale concern can adjust its production according to the changing demand pattern. It can increase and decrease its production as per requirements. Moreover, no legal formalities are required for making changes in operations. A joint stock company cannot go beyond its objective clause. Because of being flexible in operations, a sole trade concern is most suitable for industries dealing in fashionable and seasonal goods.
4. Retention of Business Secrets. A sole trader can maintain business secrets. Being the sole proprietor, he is not expected to share his trade secret with anybody else. He is not expected to publish his accounts. He can maintain secrecy from his competitors. Secrecy is very vital for small- scale concern’s.
5. Easy to Raise Finance. An individual entrepreneur is able to create goodwill for his business. This helps him to establish his creditworthiness in the market. Secondly, the liability in sole-trade organization being unlimited, the creditors can have a claim over the private property of the owner. The creditors feel secure in extending credit to individual proprietors. Moreover, they try to repay the loans as quickly as possible so that they do not lose goodwill in the market. Once a sole trader loses his creditworthiness, he will not be able to get much help from the market.
6. Direct Motivation. The proprietor takes keen interest in the working of the business. He tries to put his heart and soul in the business so to earn as much profits as he can. There is direct relationship in efforts and reward. In other forms of organization, the profits are shared by more than one person. So everybody may not put in his best efforts.
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7. Promptness in Decision Making. All important decisions are taken by one person. He can take prompt decisions. He will not let an opportunity slip away. If more than one person is involved in decision-taking, then delay is bound to occur.
8. Direct Accessibility to Consumers. In sole-proprietorship the scale of operations is small. The owner can have direct contact with customers and employees. He can know the relations and preferences of consumers. It enables him to make necessary changes in the quality and design of his products. It will help him to boost his sales. He can also put emphasis on consumer service.
9. Inexpensive Management. The sole-trader is the owner, manager and controller of the business. He does not appoint specialists for various functions. He personally supervises various activities and can avoid wastage in the business. He does not create managerial paraphernalia. In this way managerial costs are saved to a large extent.
Advantages of Sole Proprietorship My Study
10. No Legal Restrictions. There are no legal requirements for starting a business. There is no special act governing the work of a sole-proprietor. The proprietor is not required to submit the results of his business to any authority. There is no restriction in changing the nature of business, Even dissolution of the business can easily be undertaken. The tax liability on a sole-trader is also low. He is taxed as an individual and not as a business unit.
11. Socially Desirable. One man business is generally on a small scale basis. Large number of sole-traders have entered all types of business. It helps in avoiding concentration of wealth. Large scale business leads to wealth accumulation in few hands. Sole-trade business also provides competition to other businesses. The consumers will not be dependent upon big business houses. So, sole-trade business is socially desirable.
12. Self-Employment. The sole-proprietorship form of organization offers the means of self- employment to those who do not want to serve others. As everyone cannot get a suitable job to earn his livelihood in a developing country, the individuals can easily start a small sized business unit as a sole-trader.
13. Healthy Relations with Employees. A sole-trader is in a position to maintain direct relations with his employees. This enables the employer and the employees to understand and appreciate the difficulties of each other. Moreover, a sole trader can quickly solve the grievances of his employees. This results into healthy relations between employer and employees which is of vital importance for the success of the business.
14. Benefit of Inherited Goodwill. A sole-trader passes on the business goodwill to his successor. Technically a sole-trade business is dissolved on the death of the owner but in reality the same business is continued by a heir. The goodwill which one person earns during the life time is also passed on to those who continue that business.
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