Meaning of Sole Proprietorship
Sole trader-ship (proprietorship) is that form of business organization whose owner is just one person, who is called the sole trader. This person invests capital in the business and is solely responsible for all the profits and losses of the business. The same person is the manager and organizer of the business.
Advantages, Merits, and Importance
Following are the merits (or importance) of the sole proprietorship system
Free Selection of Business
The sole proprietor is free to select his own business. He can choose any business, except those businesses which are restricted by the government.
The sole trader has to arrange for the capital from his own resources. Thus, he always tries to make the best utilization of it, because he knows very well that any loss caused even by a minor mistake, has to be borne by him only. Thus, this system is economical.
A sole proprietor business can be easily established because it needs not to fulfil any legal formalities. Thus, it can be established easily.
The secrets of the business are limited to its owner only. Thus, the secrets of a sole trader business can be kept secret
The sole trader is the whole-sole authority of his business. Any decision relating to the business can be taken quickly by him because he needs not consult any other person on any issue
Since the sole trader is the whole sole owner of his business; he has full control over his business, and all the factors of production work according to his instruction.
Full Share of Profits
The sole trader has a full share of profits. This always inspires him to work with determination to attain maximum profits.
Enthusiasm and Devotion
The sole trader is himself responsible for all the losses of his business. Thus, the sole proprietor works with higher interest, enthusiasm, and efficiency, which increases the probability of maximum profits.
Easy to Acquire Loan
The liability of the sole proprietors in the business is unlimited. Thus, the proprietor can easily get roan on his/her personal credit.
The benefit of Patrimonial Goodwill
The sole trader can take the benefit of goodwill, established by his forefather.
Spirit of Self Confidence
The sole trader can take care of all the activities of his business. Thus, the feeling of confidence, patience, and responsibility, develops automatically.
Direct Interaction with Workers
Being the owner of the business, he remains in direct contact with the workers, which makes possible the quick rectifications of errors, done by them.
The sole trader does not come under the schemes of “Double or Multiple Point Tax System“, like the joint-stock company. And in this way, there is a saving of tax in a sole proprietorship.
The owner must perform all the activities of sole trade himself. Thus, the qualities likeability of risk-bearing and skillful leadership, etc. are easily and automatically developed in him.