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Speak about advantages and disadvantages of sole proprietorship as a form of business organization

A sole proprietorship is a business owned and usually operated by a single individual. A sole proprietorship is also referred to as the proprietorship, single proprietorship, individual proprietorship, and individual enterprise. Its major characteristic is that the owner and the business are one and the same in the eyes of the law. In other words, the owner is in sole charge of the business and entirely responsible for its success or failure, he has to bear 100% of the risks incurred by his company, provides most of its capital and its total management.

Sole proprietorship is the oldest and most common form of ownership. Some examples include small retail stores, doctor's and lawyer's practices and restaurants and other people who are "in business for themselves".

The only legal requirements to start such a business are a municipal license to operate a business and a registration license to ensure that two firms do not use the same name. The organization costs for these licenses are minimal.

A Sole proprietorship is the simplest way of starting a business. You are self-employed and fully responsible for all the aspects of the management of your business. The revenues, expenses, assets and liabilities of the sole proprietorship are the revenues, expenses, assets, liabilities of the owner. A sole proprietorship offers the owner freedom and flexibility in making decisions. He can make decisions quickly and decisively without having to consult others. Major policies can be changed according to the owner's wishes because the firm does not operate under a rigid character. Because there are no others to consult, the owner has absolute control over the use of the company's resources. And a sole proprietor by law pays fewer taxes and at a lower rate than a company does.

As mentioned earlier, when the losses prove to be greater than the investment, the owner is legally liable for all debts of the company (this is called unlimited liability). If the assets of the firm cannot cover all the liabilities, the sole proprietor must pay these debts from his or her own pocket. Some proprietors try to protect themselves by selling assets such as their houses and automobiles to their spouses. But if a sole proprietor has profits he does not have to share them with somebody else.

A sole proprietorship, dependent on its size and provision for succession, may have difficulty in raising capital because lenders are leery of giving money to only one person who is pledged to repay. At the same time, the single owner is seldom able to invest as much capital as can be secured by a partnership or a company. If single owners are able to invest large amounts of capital, they run great risk of losing it while paying debts.

A proprietorship has a limited life; it can be dissolved as easily as it can be started. A sole proprietorship can terminate on the death, incapacity, bankruptcy, insanity, imprisonment, retirement, or whim of the owner. The assets can be inherited by a person who then becomes an operator, but legally the business dies with its owner.



In spite of its limitations, the sole proprietorship is well adapted to many kinds of small businesses and suits the temperament of many persons who like to exercise initiative and be their own bosses. Any line of business is open to an individual proprietor, so it is often the starting point for developing a new product or service, and if it is successful, the business grows into a larger firm. Sole proprietors can provide individualized products for customers who have grown weary of mass-produced goods. Moreover, customers often believe that an individual who is accountable will do a good job.

Of course, sole proprietorships often fail because of the owner's possible lack of ability or experience. But even if a business fails, it turns out to be a valuable learning experience for the entrepreneur, who may be successful the second or the third time.

 


Date: 2015-12-11; view: 939


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