Merits and demerits of sole trading concern

Merits of sole trading concern

1. Easy to start and dissolve:
A sole proprietorship can be setup easily and quickly. No legal formalities and expenditures are involved in the establishment of a proprietorship. There is no need to associate 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 for 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 direct relationship with efforts and reward. There is an incentive to work hard. The proprietor is motivated to make the best possible use of his skills and resources to maximize the 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 helpful 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 functions. 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 sole proprietorship is inexpensive. As 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 the people with limited money. It offers a way of earning an honorable living for those who do ot ant to work under other. It also facilitates equitable distribution of income and wealth.

Demerits of sole trading concern

  1. Sole proprietorship has limited capital
  2. Sole proprietor only uses his ideas and innovation capacity. So there is limited managerial ability
  3. Sole proprietor must work more to earn more profit. Higher profit generation is important. So, there is dull and monotonous wok.
  4. Death of sole proprietor causes death of sole proprietorship.
  5. There is no specialization in decision taking. So there can be chances of taking wrong decisions
  6. There is low investment resulting in limited areas of operation.

Top comments (0)