Advantages and Disadvantages of Sole Proprietorship as a Form of Business

Sole Proprietorship Advantages and Disadvantages.

The sole proprietorship is also called one-man business. It is usually owned and managed by one man. It is found mainly in small business areas such as craft, GSM services, legal services, transportation and trading businesses. No restrictions are imposed on the establishment of this type of business. Those who have little capital to establish big businesses engage in one-man business. With the present efforts being made by government to divest interest in businesses that can be run efficiently and conveniently by individuals, it is hoped that the recent upsurge in the number of one-man business will continue.

The sole proprietorship has advantages and disadvantages, which have serious implications to willing entrepreneurs.

Advantages of Sole Proprietorship.

  • There are no legal restrictions in the establishment of the business, so it is easy to start.
  • The proprietor’s account is not made public, so he pays little or no tax and enjoys absolute privacy.
  • The man shares his profits alone; he enjoys all his gains alone.
  • The proprietor does not wait for any other person to take decisions. He grabs business opportunity as soon as he sees it. quick decisions.
  • Personal services are possible since the proprietor usually knows all his staff, customers and even competitors. This enables him to have close contact with them and to offer them personal services. It also helps him detect any problem in good time.

Disadvantages of Sole Proprietorship.

  • The entrepreneur suffers from Weak Financial Base. He supplies all the money he needs and finds it difficult to borrow from organised institutions. His weak financial base is because he has no collateral to borrow from banks and other financial institutions. A sole proprietor “has limited capital for expansion”. This is compounded by the fact that he cannot issue shares to the public for subscription. The result is that he remains in his/her low estate unless he merges with other businesses.
  • Long Hours of Work. The success of the organisation depends on only his personal efforts. He therefore stays for long hours, opens on weekends and even on public holidays.
  • No Expert Advice. The proprietor is the jack- of – all trades. He is a generalist and therefore bears the responsibility of day to day running of the business. He cannot employ the services of specialists.
  • Lack of Continuity. The death of the proprietor in most cases translates to the death of the business. Only him probably knows secrete of the business and therefore dies with it. When family members are interested in the continuity of the business, quarrels and quest for succession normally brings about the collapse of the business. In summary the business dies with the man.
  • Lack of Limited Liability. The liability of the sole-proprietor is unlimited. The result is that in the event of the winding-up or folding-up of the business, even the owner’s personal belongings may be sold to recover the debts owed by the business. If the assets of the business are not enough to defray the debts, the man’s personal property may be sold to recover the debt. Most of the time law courts are there to ensure execution of judgment.
  • Under Capitalisation: Perhaps the most teething problem and disadvantage of sole proprietorship is poor business capital accumulation. The sole proprietorship has limited capital for expansion.