Definition of Sole Proprietorship
Sole proprietorship is one of simplest form of business organization found in India. It is termed as one-man business and has many advantages of Sole proprietorship. It is one of the oldest forms of business organization. In these businesses, there is only one person who is the sole owner of the business. He himself manages all responsibilities of business.
The owner has unlimited liability for the business debts & losses. Even his personal property can be used for paying business debts. There is no sharing in profit & loss of business, the whole of it is kept by the sole owner. There are other persons who work in these businesses under the supervision of the owner. They are not partners in business. These businesses need to follow fewer formalities in comparison to other businesses.
Limitations of Sole proprietorship are as follows:
Limitations of Sole proprietorship
This is one of the main disadvantages of a sole proprietorship business. All funds are arranged by the single owner of the business. His sources of funds are limited that could be his relatives & friends.
Sometimes it becomes difficult for a single person to arrange the required amount of funds. If funds are not arranged timely it could affect the business growth & functioning.
The sole proprietor has unlimited liability for the sole proprietorship business. He alone has full responsibility for business debts & losses. Even his personal property is used for paying off business debts.
Due to this reason, owner hesitates from taking large risks. It avoids the owner from expanding the business size.
Continuity is Uncertain
The life of a sole proprietorship business is completed dependent on his sole owner life. There is no other person to look after the business. Business is directly affected by the owner’s death, illness & insolvency. Therefore, the life of the sole proprietorship business is uncertain.
Lack of Management
There is one person in sole proprietorship business who solely manages the business. He may not be a management expert. He may lack the abilities to manage the business efficiently.
A professional manager cannot be hired due to limited financial resources. Sole proprietorship business lacks professional management skills.
Size is limited
Sole proprietorship business has a very limited size. Its area of operation is limited to a small area. There is a single person who manages the whole business.
It becomes difficult for him to manage & supervise business beyond a certain limit. It becomes one of biggest problem in expanding the business size.
Loss in Absence
The presence of sole proprietor is must for the success of the business. Whole business responsibility lies with a single person. His absence may lead to a loss in business. He needs to be punctual & fully careful for his business. He can’t take a holiday from his business.
Large secrecy in sole proprietorship business is one of its biggest demerits. There is only one person to whom the business secrets are none. This becomes the biggest problem for business in maintaining a good credit rating in the market.
Moneylenders hesitate in providing loans to businesses. Hence acquiring proper finance become a problem for business due to high secrecy.
Limited Business Area
Sole proprietorship business is fully controlled & managed by a single person. It is difficult for a single person to manage the business operations after a certain limit.
Hence, it becomes difficult for a sole proprietorship to increase the business size after a certain limit. Sole proprietorship business is carried on a small scale.