Lesson 1, Topic 3
It is a business unit owned by one man. The organization is established, controlled, financed, and owned by one person with the aim of making a profit. It is the oldest form of business. It is also known as sole trading or proprietor.
The Characteristics of a Sole Proprietorship
- One man business: It is owned by one person
- Unlimited Liability: The liability of the proprietor is unlimited
- Limited source of Capital: The capital used in forming and running the business comes from the proprietor
- The motive of its formation: To make a profit
- Freedom of taking quick decisions
- Legal status: The business does not have a separate legal entity, it can’t be sue and be sued in its name.
- Risks: He is the only one that bears risk or profit alone.
- Business nature: The commonest type of business unit.
Advantages of Sole Proprietorship
- It very easy to establish because it requires small capital.
- No formalities and legal processes are required
- Decision making is quick
- All profit belongs to the owner
- There is personal contact with both employees and customers.
- It survives in any environment
- There is privacy in conducting business affairs
- It is possible for the sole proprietor to have more than one occupation.
Disadvantages of Sole Proprietorship
- Bearing all risks alone
- Lack of economics of scale
- Lack of credit facility and loans because of the level of rating.
- The business has an uncertainty of continuity: If the sole trader dies the business may die with him
- Limited scope of discussion and policy.
- Unlimited liability