If you are starting a business on your own, i.e. without any partners, then sole-proprietorship is the right business model for you. In this article, let’s have a look athe various advantages and disadvantages of a sole-proprietorship business.
- Simple Form of Organisation:
Proprietorship is the simplest form of organisation. The entrepreneur can start his/her enterprise after obtaining a simple trade license (and specific permits, if applicable to the particular business). There is no need to go through the legal formalities and compliance requirements, which is often the case for a company or a partnership business.
- Owner’s Freedom to Take Decisions:
The owner, i.e. the proprietor is free to make all decisions and reap all the fruits of his labour. There is no other person who can interfere or weigh him down.
- High Secrecy:
Secrecy is another major advantage offered by proprietorship. This is because the whole business is handled by the proprietor himself and, as such, the business secrets are known to him only. Combined to it is the fact that the proprietor is not bound to reveal or publish his accounts. In present day business atmosphere, the less a competitor knows about one’s business, better off one is. What the competitors can make is guesstimates only.
- Tax Advantage:
As compared to other forms of ownership, the proprietorship form of ownership enjoys certain tax advantages. For example, a proprietor’s income is taxed only once while corporate income is, at occasions taxed twice, say, double taxation.
- Easy Dissolution:
In proprietorship business, the entrepreneur is all in all. As there are no co-owners or partners, therefore, there is no scope for the difference of opinion in the case the proprietor/entrepreneur-wants to dissolve the business. It is due to the easy formation and dissolution, proprietorship is often used to test the business ideas.
- Limited Resources:
A proprietor has limited resources at his/her command. The proprietor mainly relies on his/her funds and savings and, to a limited extent, borrowings from relatives and friends. Moreover, other funding options, such as venture capital are virtually unavailable to a sole proprietorship. Thus, the scope for raising funds is highly limited in proprietorship.
- Limited Ability:
Proprietorship is characterised as one-man show. One man may be expert in one or two areas, but not in all areas like production, finance, marketing, personnel, etc. Then, due to the lack of adequate and relevant knowledge, the decisions taken by him be imbalanced.
- Unlimited Liability:
Proprietorship is characterised by unlimited liability also. It means that in case of loss, the private property of the proprietor will also be used to clear the business obligations. Hence, it is challenging and high risk for sole proprietors to venture into high risk projects.