Wednesday, May 21, 2008


A sole proprietorship is a business owned and operated by one person. It is the simplest and oldest from of business organization. The single owner assumes all risk, receives all profits and sustains all losses. S/he is also the operator and manager. Clearly, proprietorships are plentiful but usually small in size. They are found in almost every type of business activity - the local hardware store, bakery and barbershop. They are usually small because of the limited capital of the owners.

I. Strength of sole proprietorships.

In addition to allowing one to be one’s own boss, the proprietorship has the following advantages:

1. It is easy to start.
2. The cost organization is low
3. The owner has the freedom to manage
4. Profit incentive is strong

1. Easy to start.

A proprietorship is easy to start because there is no need to make a contract with other owners. There is no charter to obtain from the government. There are few restrictions - although one may need a license from the local government. The owner is free to choose the name of the new business.

2. Low cost of organization

Since a proprietorship is not chartered by the government is not chartered by the government, there is no charter fee to be paid and the local license fee is small. The main costs of getting started are those for equipment and merchandise. The profits of the business are not taxed - the owner pays income taxes as an individual.

3. Freedom to manage

The sole proprietorship has a special appeal as a new firm. The owner has the maximum freedom in decision – making .There is only one person responsible and she / he is the boss. Since no one else is involved, the single proprietorship (owner) can move fast. The ability to take advantage of business opportunities can help the owner of a small business compete against corporations that are much larger.

4. Profit incentive

After expenses are paid, all the profits belong to the owner. Profit serves as a strong incentive and gives the owner maximum satisfaction.

II. Weaknesses of sole proprietorships

Every type of business has its weakness as well as its strengths. Those for the sole proprietorship are as follows:

1. Limited size
2. Unlimited liability for debts
3. Limited life
4. Limited management ability.

1. Limited size

The size of a sole proprietorship is limited by the amount of capital the owner can raise. The capital the money already on hand plus what can be borrowed
As the amount of capital needed increases, the owner may find it necessary to change to a partnership or even a corporation. Many corporations begin as proprietorships.

2. Unlimited liability of debts

The claims of creditors again a business might exceed the value of its assets. In this case the personal property of the owner may be taken to pay the business debts. This fact often discourages people from starting their own business. It is one of the most serious weaknesses of the proprietorship.

3. Limited life

What happens to a business if the owner dies? This is often a real problem for the single-owner firm. If no family member is ready. Willing and / or able to carry on, it must be sold. If family members are not prepared to manage it, bankruptcy can result. A sole proprietorship has no legal life beyond that of its founder.

4. Limited management ability

Every business has many basic functions that must be performed in order that it be successful.
Depending on the type of business, these my include buying, selling, advertising, accounting, insurance, credit and personnel management.
The fact that few people are expert in all these areas is the chief cause of most small-business failure.
Yet the sole owner is responsible for carrying out even those functions for which she/he has no real competence.
In spite of all this, the sole proprietorship has special appeal for a new firm. Being one’s own boss and keeping all the profits are incentives strong enough to motivate many owners to work hard and succeed.

(based on Business/T.L)

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