Sole Proprietorship

What is Sole Proprietorship?

A sole proprietorship is a form of business organisation, that is owned, organised, and controlled by one person for the purpose of making a profit.

It is also known as a sole trade or one-man business. It is the oldest and most common form of business organisation. The owner is called a sole proprietor or sole trader.

Examples are petty traders, hairdressers, plumbers, fashion designers, etc.

The owner makes decisions alone and the business is not separated from the owner (Unlimited)

A sole proprietorship does not need to be registered or incorporated. It requires a small amount of capital to start operations.

Advantages of Sole Proprietorship:

• It is simple and costs little to run.

• It is easy to establish.

• The owner keeps all the profit and spends the proceeds as he or she wishes.

• The owner enjoys privacy.

• It is easy to manage.    

• It requires a small amount of money to start.

• The owner enjoys a close relationship with his workers and customers.

• He or she chooses the location of the business.

Disadvantages of Sole Proprietorship:

• When indebted, the owner can sell the business.

• The death of the owner can lead to the end of the business.

• It cannot quickly expand because of a lack of large capital.

• It does not allow room for specialization.

• The owner bears all the risks of the business.

• They tend to lose their workers to bigger organisations since they are not likely to pay high salaries.

• They need to sell products at a higher price compared to bigger operators.