Suitability of Sole Proprietorship - My Best Study

Suitability of Sole Proprietorship – My Best Study

Online My Best Study: The amount of capital and managerial skill required for a particular business influences the decision about form of organization. When the scale of operations is small then capital requirements will be less and sole proprietorship is the most suitable form of organization.

With the improvements of industrial technology and devising offprt new production methods, the needs for capital have increased.  Other forms of organization like partnership and joint stock company have also become popular. There are certain types of businesses where sole proprietorship is still the most suitable form of organization. This form of organization is also suitable under certain circumstances. These circumstances are as follows:

1. Where Market is Local. When market for a product is limited only to a particular place. scale of business operations will be small. The amount of capital required will be less and the ordinary managerial skill will be sufficient. Under such situations, sole proprietorship will be most suitable. Most of the retail trade is controlled by sole-traders.

2. When Personal Contact with Customers is Required. There may be a need for personally contact with customers. The customers may have their likings and preferences for particular things Under these situations sole proprietorship form of organization will be suitable.

A doctor and a lawyer will be required to have direct contact with his patient and clients. A customer may have his own liking for getting his clothes stitched. So, in all these cases sole proprietorship will be more useful.

3. Speculative Business. In speculative business the demand and prices of products change quickly. The businessman is required to take prompt decisions. A sole proprietor can take immediate decisions as warranted by the situation. He need not consult anybody else. So he can decide the things himself. No other form of organization will be as suitable for speculative business as sole proprietorship.

Social Desirability of Sole Proprietorship

Social Desirability of Sole Proprietorship
Social Desirability of Sole Proprietorship

The limitations of sole-proprietorship has necessitated the development of other forms of organization. The wide spread use of other forms of organization has not eliminated sole- proprietorship, rather it continues to be most popular form of organization in every country. This form of organization has a social desirability too. Its social necessity is because of the following reasons:

 

1. Employment to large number of persons. This form of organization is started by one person but he takes other persons for his help. The number of sole-traders is very large in all countries employment to a large number of persons.

2. Need of Less Capital. This form of organization can be undertaken by the persons of all means. A person with small resources can start a business at a small scale. A vegetable seller can start his business with few hundred rupees and get his capital back at the end of the day. So, this type of form encourages people to take up their independent business.

3. Less Risk. Generally, sole-proprietorship is started at a low scale and investments made are also less. A person can even change his line of business if it is not suitable because it is less risky to do so.

4. Providing Goods at Low Prices. The consumers are provided goods at low prices under this type of form. The number of sole-traders being large, they have stiff competition from one another and consumers are provided goods at competitive rates. The overhead expenses of the business are, generally, less, so it enables the sole-traders to sell goods at low prices.

5. Equal Distribution of Income. This form of organization acts as a constraint on the monopolistic tendencies of other forms of organization. A large number of persons enter the business so this results in equal distribution of income.

Every person is able to invest his savings and get a equitable return on it. When the business is in the hands of a few persons, then it results in concentration of wealth in the hands of some persons only.

6. Helpful to Small Producers. The sole traders purchase goods from small producers and sell them to the consumers. A number of intermediaries are eliminated from the channel of distribution.

The part of profit earned by mediators in the shape of commission is partly left with the produced and partly passed on to the consumers in the shape of low prices.

7. Helpful to Consumers. The consumers are helped by sole traders in making their purchases The sole-traders open their shops in streets so that consumers are able to make purchases from nearby shops. The goods are supplied even at the door step by hawkers, etc.

8. Acts as a Training Centre. A sole-trade business provides an opportunity to learn the techniques of business. The investments being less so one can afford to learn by trial and error method. By bearing various pros and cons of a business one can expand it later on. So, this is a good form of organization to get business training.

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