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SS1: ECONOMICS - 2ND TERM

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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

  1. One man business: It is owned by one person
  2. Unlimited Liability: The liability of the proprietor is unlimited
  3. Limited source of Capital: The capital used in forming and running the business comes from the proprietor
  4. The motive of its formation: To make a profit
  5. Freedom of taking quick decisions 
  6. Legal status: The business does not have a separate legal entity, it can’t be sue and be sued in its name.
  7. Risks: He is the only one that bears risk or profit alone.
  8. Business nature:  The commonest type of business unit.

Advantages of Sole Proprietorship

  1. It very easy to establish because it requires small capital.
  2. No formalities and legal processes are required
  3. Decision making is quick
  4. All profit belongs to the owner
  5. There is personal contact with both employees and customers.
  6. It survives in any environment
  7. There is privacy in conducting business affairs
  8. It is possible for the sole proprietor to have more than one occupation. 

Disadvantages of Sole Proprietorship

  1. Bearing all risks alone
  2. Lack of  economics of scale 
  3. Lack of credit facility and loans because of the level of rating.
  4. The business has an uncertainty of continuity: If the sole trader dies the business may die with him
  5. Limited scope of discussion and policy.
  6. Unlimited liability

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