Sole Proprietor

Topics: Legal entities, Business law, Types of companies Pages: 9 (2974 words) Published: February 26, 2013
Sole proprietor
(1) Easy to establish: Sole trading concern can be established very quickly and easily. Anybody who wants to start a business can do so, whenever, he likes. In Nepal, only nominal legal formality of registration is necessary. (2) Easy to dissolve: Dissolution of sole trading concern equally simple. There are no legal formalities in this regard. Proprietor can dissolve business whenever he likes to do so. (3) Effective control: In this form of business organization, proprietor is responsible for all types of activities. He controls all functions and takes decisions at appropriate time. So, the business is controlled in an effective way. He controls all functions and takes decisions at appropriate time. So, the business is controlled in an effective way. (4) Direct motivation: The direct relationship between effort and reward serves as a powerful incentive to the proprietor to manage the concern efficiently. The proprietor being entitled to the entire profits of the concern tries to maximize profits by utilizing his talents and activities in the best possible way. (5) Personal supervision: The proprietor is able to supervise every work of the business himself. This helps to build up a close and cordial relationship with the employees. He can take personal interest in his customers and he can meet their individual and typical needs easily and adequately. It ensures effectively and economy in the operation. (6) Benefit of Unlimited Liability: The proprietor can obtain loan on his personal credit. The liability being unlimited, the creditors feel secure in extending credit. (7) Prompt decision: The owner has full control over his business. So he is able to take decision promptly without consulting anybody. If more than one person is involved in making decision then delay is bound to occur. (8) Secrecy: The proprietor can maintain business secrets. There is no legal regulation regarding the disclosure of business information. So he can maintain secrecy from his competitors. Secrecy is very vital for business success. (9) Flexible: Sole trader enjoys the maximum flexibility in his business. If any change in business is required, he does no have to consult any one and can make the change without delay. No legal formalities are required for making changes in operations. This gives flexibility to this type of business. (10) Social importance: From social viewpoint sole trading concern is important because: - It is a means for earning livelihood independently.

- It avoids concentrating wealth in few hands.
- It brings competition among sole proprietors, so they provide goods in cheaper rates to the society. - Qualities like self-reliance, self-confidence, tact and initiative are developed in this organization. (11) Profits: All the profits accrue to the sole proprietor. There is no restriction on the capital employed in the business. Capital gains inclusion rates are lower for individuals than for business entities. The sole proprietor also enjoys the normal tax rebates and the annual capital gains exclusion. Disadvantage

1) Limited Capital: The capital of one proprietor is usually small. It is limited to his personal savings and borrowing on personal security. Hence, he cannot undertake further expansion and development lack of excess capital and fails to enjoy the internal and external economics of scale. (2) Limited Management Ability: In the present competitive world complexities of managerial jobs are increasing everyday. One man cannot be expert in each and every function of the business. For lack of resources he may not be able to use the services of experts. So limited managerial ability will hinder the growth of the firm. (3) Unlimited Liability: The unlimited liability of sole proprietorship is a great disadvantage. A loss in business may deprive the proprietor of his assets too. So big business firms requiring more economic risk are not established under this organization. (4) Uncertain Life:...
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