Everything You Need To Know About A Sole Proprietorship Business

A sole proprietorship business may be defined as a form of business enterprise owned, financed and managed by one person with the primary aim of maximizing profit. Other forms of business organization include partnership, public cooperation, co-operative society, etc.

The sole proprietorship, also referred to as a 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 business are found in primary industries like small scale manufacturing, printing, etc. and majorly in tertiary (or service) industries like lawyers, doctors, tailors, barbers, etc.

Features Of A Sole Proprietorship Business

The features of sole proprietorship business are:

  • Ownership: The business enterprise is owned by one person.
  • Objective: The main objective of a sole proprietorship business is to make profit.
  • Source 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: The sole proprietorship business is not a legal entity as the owner is not separated from the business.
  • Management: The sole proprietor controls and manages the business by himself.
  • Lifespan: The lifespan of the business depends on the owner. The business can wind up any time.

Sources Of Capital For A Sole Proprietor

The sole proprietor can obtain his capital from the following sources:

  1. Personal savings: A sole proprietor can obtain capital from his previous savings; he can use his personal income as initial capital.
  2. Loan from family and friends: He can also raise capital by borrowing from friends and relatives.
  3. Trade credit: They can obtain capital by purchasing goods on credit from the suppliers, producers or wholesalers.
  4. Loan and other from banks: The sole proprietor can also obtain capital from financial institutions. This can be in the form of loan or overdraft.
  5. Grants from government: The government can release capital to its agencies in support of certain initiatives.
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Sole Proprietorship Advantages And Disadvantages

Sole Proprietorship Advantages

10 advantages of sole proprietorship business include:

  • It involves small capital to setup: The sole proprietorship requires 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 procedures when setting up the business.
  • Quick decisions: Quick decisions are easily taken by the sole proprietor alone without the consent of other staff of the organization.
  • Easy management: The sole proprietor can easily manage the operations of the enterprise without expert management from outside.
  • He takes all profit alone: All the profits made from the business belong to the owner of the business because he brought the capital alone.
  • It can thrive in all business environments: The sole proprietorship business can succeed in almost all business environments, be it rural or urban environments because of its simplicity in establishment.
  • Privacy in conducting business: The business owner can keep his business matters secret. He is not required to publish his account or submit an audited balance sheet to the registrar of companies.
  • There is a close relationship between owner and employee: In a one-man business, the workers are personally known to the owner. This makes supervision easy and ensures the effectiveness of business operations.
  • There is a close relationship between owner and customers: Close relationship between the owner and customers allows the owner to give special attention to the customers. Also, he can easily find out the special needs of the customers and satisfy them.
  • The sole proprietor enjoys personal rewards: He has a personal interest in the business and invests his time, money and effort so as to get a reward at the end of the day.
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Sole Proprietorship Disadvantages

Disadvantages of a sole proprietorship business are:

  • 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: The sole proprietor is always faced with inadequate capital because of the small size of the business and his inability to source funds outside.
  • He bears all the risks alone: The risks required for the business are borne solely by the owner. He rejoices if the business is successful, while he suffers alone if the business fails.
  • Unlimited liability: In the event of business failure, his personal assets and properties have to be sold to pay his creditors.
  • It is not a legal entity: In the eyes of the law, there is no difference between the sole proprietor and the business itself. The business cannot sue or be sued in its own right.
  • The owner lacks specialization: The owner is personally involved in every section of the business. He works very hard; he may not take public holidays, and scarcely have rest. In most cases, when he is absent, the business may close down temporarily.

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