Merit and Demerit of Sole Trade Concern

Merits of Sole Trade Concern

looking after different elements of business, every business has its own advantages and disadvantages. The following are the major advantages of Sole Trading Concern.

1. Easy to start/establish and dissolve: A sole proprietorship can be set up easily and quickly. No legal formalities and expenditures are involved in the establishment of a proprietorship. There is no need to associate with others or to enter any agreement. Only a license may be needed in special cases. The owner can start business operations as and when he desires. Similarly, a sole proprietorship can be closed down very easily and quickly.
2. Motivation to work: The proprietor is all alone entitled to all the profits and the losses of the business. He bears the complete risk and there is nobody to share the risks, workload or any profit or losses. There is a direct relationship between efforts and rewards. There is an incentive to work hard. The proprietor is motivated to make the best possible use of his skills and resources to maximize profits.
3. Quick decisions: The sole proprietor is completely free to take all decisions and to implement them. He doesn’t need to consult or seek others’ approval. Quick decisions and prompt actions are helping to improve the efficiency of business operations.
4. Independent control: The proprietor alone takes all the decisions pertaining to the business. He is not required to consult anybody. Ownership and management are vested in a person. There is no governmental intervention in day to day activities.
5. Business secrets: The sole proprietor can keep the secrets to himself and these secrets are not known to competitors or others.
6. Personal contact: A sole proprietor is in a position to maintain intimate contacts with his customers and employees. He can enter to the requirements of each and every customer. Close personal touch increases the competitive strength of the business.
7. Flexibility: A sole proprietorship is small in size and has a simple management function. Therefore, it can be adapted easily to suit the changing conditions of the market. The line of business can be easily changed or modified.
8. Economy: The management of a sole proprietorship is inexpensive. As the sole proprietor himself is the manager, the cost of management is very low. Borrowing capacity is high owing to the unlimited personal liability of the owner.
9. Social utility: Sole proprietorship provides an opportunity for gainful self-employment for people with limited money. It offers a way of earning an honorable living for those who do not want to work under others. It also facilitates the equitable distribution of income and wealth.
10. Enhance social prestige: Sole trading is a means of maintaining social status and prestige in society. People can start their own business with a small amount of capital as per his/her skills and experience. We see the people, who don’t like to work for others are usually established such business. It is also helpful to maintain self-recognition.

 Demerits of Sole Trading Concern:

The following are the major disadvantages:

1. Limited Capital: Sole proprietorship has limited capital. Since there is only one investor/owner, he/she can not manage a huge amount of capital.
2. Unlimited liability: The liability of sole trading concern may be more than its capital investment. Sole proprietors can borrow money from any form of financial provider, but when the problem of dissolution/closing arises, the proprietor has to settle all the payment of business even by selling their personal property.
3. Uncertainty: the existence of the sole trading concern depends on the wish of the proprietor. Sole proprietors can dissolve the business when he feels there is no benefit of continuing the business. Also, this business will automatically dissolve if something happened to the proprietor.
4. Limited public relation: The owner has to manage all functional areas to run the business smoothly so he gets less time to connect with his customer. Due to lack of time, he can get limited opportunities to share his business information with his client.
5. Impractical decision: “Two heads are better than one” is the universally accepted proverb. since he has to involve in all the business activities and he cant specialize (has broad knowledge) in all the areas of business. So when the business owner decides on any matter in which he/she is not aware, the decision is more likely to be wrong or impractical.
6. Difficult to obtain a loan: The internal matter or any activities of the sole proprietor remains to secrete within the business organization. Investors find it less trustworthy to invest in such a business.
7. Lack of Specialisation: In the sole trading concern, the proprietor has to share his time in various sectors of the business and he cant give focus on specific areas of operation so the proprietor cant specializes in a particular area of business.
8. limited opportunity for the employee: This is a small organization with limited resources and area of operation. There is less opportunity for the staff to grow.
9. Sole proprietor only uses his ideas and innovation capacity. So there is the limited managerial ability
10. Sole proprietors must work more to earn more profit .higher profit generation is important. So, there is dull and monotonous work.
11. Death of sole proprietor causes the death of sole proprietorship.
12. There is no specialization in decision making. So there can be chances of taking wrong decisions
13. There is low investment resulting in limited areas of operation.