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In the history and development of commerce, there are diverse forms of business organization. In Sole Proprietorship, a single person invests money in the business and so gets all the profits.
There is only one owner in the Sole Proprietorship. He invests all the capital required for the business. He owns all the assets of the business. He also remains responsible for all the liabilities of the business.
No Sharing of Profit and Risk
A proprietor is a single owner of the business. There is nobody to share his profits or losses. He enjoys the profit of the business as well as the bears all risks alone.
A sole trading concern is the best suitable form for self-employment. Any unemployed person can start a business with small capital and earn his livelihood. He gets a source of income by starting his own business.
Local Market Operations
A large amount of capital and expert managerial ability is required for large scale business. A sole trader has limited capital and limited managerial ability. Hence, generally, a sole trader operates in the local market.
No Separate Legal Status
A sole trading concern does not enjoy separate legal status. In the eyes of Law, the sole trade and his business are considered one and the same.
Minimum Government Regulations
There is no separate act or law to legislate the ventures of Sole Trading Concern. The registration of Sole Trading Concern is not mandatory. Rigid legal formalities are not required for formation. Only the tax laws and labour laws have to be followed.
Sole Trader has access to unlimited liability which means there are no restrictions on liabilities but as there are benefits there also exists conditions and the condition states that if the company fall into loss then the Sole Trader has to pay off the liabilities by selling their business properties and if the loss is not completed then their personal properties also.
The formation of a Sole Trading Concern is very permissive and modest. Minimum legal formalities are required for its formation.
Sole Trader takes quick business decisions. Consulting any person is not mandatory. Sole Trader is not answerable to anybody. Quick decisions can also be proved profitable and beneficial.
Sole is Trader is both the owner as well as the manager of his business. So he might not disclose his business secrets and plans with any third person. There is no need to publish books of accounts of Sole Trading Concern which helps in keeping secrecy.
Sole Trader is the owner and manager. He enjoys the whole profit of the business. He has direct motivation to earn more profit. He always tries to work hard for more profits.
To expand the business, a sole trader can make changes and expansion in a matter do time with the help of the required resources without asking anyone as he is the only decision-maker.
Sole Trader is a Sole Manager of its business and so he has the responsibility of controlling the activities going on in their business. His first attempt to run the business is to minimize the expenses to be incurred on the business.
As Sole Trader enjoys the whole profit of his business, he tries to maximize his profits by decreasing the unnecessary expenses in his business. He avoids wastages like wastage of money, time, material and efforts.
As Sole Trader is a single owner, his capacity for raising capital is limited. The trader may raise capital from his friends, relatives, and banks, etc. Such sources are also limited. So there is a financial difficulty for the expansion and development of the business.
Limited Managerial Skill
A Sole Trader has to manage and control the business. He may or may not possess qualifications and experience. He may not have expert managerial and organizing ability. Due to limited capital, he may not appoint managerial staff.
The liability of a sole trader is unlimited. There is no distinction between personal assets and business assets. So he cannot be separated from the business. The business liabilities need to be paid by selling his private property if required.
Lack of Stability
Existence of Sole Trading Concern is totally dependent on the existence of a Sole Trader. Death, insanity or insolvency of the Sole Trader affects the existence of the business.
Lack of Specialization
Division of work leads to specialization but Sole Trader is involved in all activities of the business such as buying, selling, accounting, etc. The Sole trader is required to play multiple roles.
Not suitable for large scale operations
Sole Trader conducts its business on a small scale. Generally, the Sole Trader operates in the local market. Sole Trading Concern is ‘one-man show’, Business cannot be extended beyond a certain limit.