Hello welcome to this blog on Characteristics of Sole Proprietorship in commerce. We are going to be looking at the meaning, advantages and Disadvantages.
Table Of Contents
- Meaning of sole proprietorship
- Features or characteristics of sole proprietorship
- Sources of capital of a sole proprietorship
- Advantages of sole proprietorship
- Disadvantages of sole proprietorship
Meaning: Sole Proprietorship may be defined as a form of business Enterprise owned, finance and manage by one person with the primary aim of minimizing profit. The sole proprietorship, also popularly referred to as one man business, is the oldest and the most common type of business organization. It is an unincorporated business unit owned by one person who provides the capital, runs the business and undertakes the risks and profits of the business alone.
Examples of sole proprietorship are found in primary industries like small scale farming, fishing Farming; IN secondary Industries like small scale manufacturing and printing and especially in tertiary (or service) industries like lawyers, doctors, Taylors, musicians and traders.
Characteristics of Sole Proprietorship
- Ownership: The business Enterprise is owned by one person.
- Objective: The main objective of the one man business is to make profit.
- Sources of capital: The capital required to set up and run the business is provided by the proprietor.
- Liability: The sole proprietor has unlimited liability.
- Legal entity: It is not a legal entity as the owner is not separated from the business.
- Management: The business is controlled and managed by the sole proprietor himself.
- Life span: The life span depends on the owner. The Enterprise can fold up anytime.
SOURCES OF CAPITAL OF A SOLE PROPRIETORSHIP
The sole proprietor can obtain his capital from the following sources:
- Personal savings: A sole proprietor can obtain capital from his previous savings, he can use his personal income as initial capital.
- Loan from Friends: He can also raise capital by borrowing from friends and relatives.
- Trade credit: They can obtain capital by purchasing goods on credit from the suppliers, producers or wholesalers.
- Loan and overdraft from banks: The sole proprietor can also obtain capital from financial institutions. This can be in the form of loan or an overdraft.
- Grants/loans from government: Government can release capital to it’s agencies in support of certain programme, e.g, The government of Nigeria under it’s s poverty alleviation program can release some funds in the form of loans to unemployed graduates, among others, to set up small scale businesses. This constitutes a source of capital for a sole proprietor.
ADVANTAGES OF SOLE PROPRIETORSHIP
Below are the various advantages of sole proprietorship or one man business.
- It involves small scale capital: The sole proprietorship requires a very small capital to set up.
- It is easy to establish: The one man business is easy to establish because of the small capital requirement and it may not involve much protocol or procedures when setting up the business.
- Taking a quick decisions: Quick decisions are easily taken by the sole proprietor alone without the consent of order workers in the organization.
- Another advantages of sole proprietorship is that It is easy to manage: The sole proprietor can easily manage the operations of the Enterprise without expert management from outside.
- It requires small operation: The sole proprietorship serves fragment said market in West Africa and as such, large operations would not be necessary.
- Another advantages of sole proprietorship is that All profit belong to the owner: All the profit derived from the business belong to the owner of the business because the capital outlay or provision came from him.
- It can thrive in all business environment: The sole proprietor can thrive in almost all business environment, be it rural or urban environment because of its simplicity in establishment.
- There is privacy in conducting business affairs: The sole proprietor can keep his business matter secret. He is not required to publish his account or submit and audited balance sheet to The registrar of company.
- There is a close relationship between owner and employee: In one man business the workers are personally known to the owner. This makes supervision easy and ensures effectiveness of business operations.
- There is a close relationship between owner and customers: The close relationship between the owner and customers allow the former to give special attention to the latter. Also, he can easily find out the special requirement of customers and satisfied them
- The sole proprietor enjoys personal reward: He has a personal interest in the business and invest his time, money, and effort so as to get reward at the end of the day.
- There is effective planning: The sole proprietor embarks on effective planning and formulation of policies alone and this will guide them in the smooth running of the Enterprise by way of taking prompt business advantages, e.g, in sales and purchases.
DISADVANTAGES OF SOLE PROPRIETORSHIP
below are the various disadvantages of sole proprietorship:
- Problem of continuity: IN the event of the death of the owner, the business may also die with him, especially when there is no successor to take over from him.
- Inadequate capital is another disadvantages of sole proprietorship: The sole proprietor is always face with inadequate capital because of the small size of his business and his inability to source funds outside his business.
- He bears all risk alone: The risk required in operating the business is born solely by the owner. If the business is successful, he rejoices but when it fails, he suffers it on alone.
- It has unlimited liability: In the event of business failure, his assets and properties have to be sold to pay back his creditors.
- It is not a separate legal entity: In law there is no difference between the owner of the sole proprietorship and the business itself. The business cannot Sue or be sued in it’s own rights.
- He lacks specialization: The owner is personally involved in every session of the business. He walks very hard, he may not take public holidays, and scarcely has rest. In most cases, when he is absent, the business may close down temporarily.
- Another disadvantages of sole proprietorship is that there is limitation in expansion: The sole proprietorship suffers from lack of expansion, both in ideas and business, as a result of inadequate capital.
Revision Questions
- Explain five characteristics of sole proprietorship
- (a) What is a sole proprietorship? (b) list and explain five advantages of a sole proprietorship.
- (a) List and explain five sources of raising capital by a sole proprietorship (b) what are the advantages of a sole trading business?