Sole Trader / Sole proprietorship

Sole Trader / Sole proprietorship

A sole trader is a single person owning and usually managing the business. This is the simplest and oldest form of business organization.

Features of sole proprietorship

Ø Owned by one person: owned and controlled by a single person

Ø Management : sole trade business is managed by a single person

Ø Responsible by one person: the owner himself is responsible for all the debts and all the profits in  the business

Ø Funds raised by one person: the owner himself/herself has to raise the capital of the business either investing his own capital or borrowing

Ø Risk taken by one person: the risk of loss or other risk has to be tolerated by the owner in sole trade business

Ø Aims and objective of business would be decided by one person: as the owner himself is responsible for all activities aims and objectives of business would be decided by him/her

Advantages of sole trade business

ü Flexibility: the sole trader can change his business strategies anytime. He does not have to depend on anyone.

ü Easy to start: it is very easy to establish. They only have to register business and no complicated rules and regulation are there. It also requires less capital to start up the business.

ü Convenient working hours: the sole trader will have the convenient of timing. He can fix the business timing as per his choice and convenience.

ü Quick and flexible decisions: as there is only one person managing and controlling business it will be quicker to come to a decision as the sole trader does not have to discuss his ideas with any one.

ü Profits: sole trader enjoys the profit himself he does not have to share his profit with any one.

ü Privacy: there is no chance of leakage of business secret as the sole trader do not have any other person to share the information with

ü Personal interest: as the sole trader is the owner manager and profit taker he will work with personal interest. He will work hard to increase the profits

ü Personal services: normally sole trade businesses are small in size. Hence the owners can provide personal services to customers leading to better relation with customers.

Disadvantages of sole trade business

û  Unlimited liability: sole trader will have unlimited liability, which means if the business goes bankrupt, the sole trader is personally responsible for the debts of the business. Sole trader may sometimes have to sell his personal possessions in order to pay the debts.

û  Limited capital: the sole trader is the only person who provides capital. So it is difficult to raise money and expand the business.

û  Uncertainty: if death/insolvency of the sole trader will bring business to end

û  Losses: the sole trader has to suffer all losses

û  Hasty decisions: sole trader may take decision in hurry and there will be no one to give second opinion. His decisions may be fatal for his business sometimes

û  Control: it is difficult to control all the affairs of the business for a single person.