Learn and Study, What are Advantages of Sole Proprietorship? Explaining are, Easy Point, Trade, Multipoint!
Proprietorship (also called sole trade organization) is the oldest form of business ownership in India. In a proprietorship, the enterprise is owned and controlled by one person. He is master of his show, he shows, reaps, and harvests the output of this effort, he manages the business on his own. If necessary, he may take the help of his family members, relatives and employ some employees. Also learn, How to Explain, What is Sole Proprietorship? What are Advantages of Sole Proprietorship?
The sole proprietorship is the simplest and easiest to form. It does not require legal recognition and attendant formalities. This form is the most popular form in India due to the distinct advantages it offers. William R. Basset opines that “The one-man control is the best in the world if that man is big enough to manage everything”. Also learned, Corporate Entrepreneurship Categories, and Organizational Thinking.
Some of the Easy Advantages of Sole Proprietorship!
There are many reasons why a person would choose to start their business up using a sole proprietorship structure. Some of the main advantages of sole proprietorships include:
Ease of formation:
Starting a sole proprietorship is much less complicated than starting a formal corporation, and also much cheaper. Some states allow sole proprietorships to form without the double taxation standards applicable to most corporations. The proprietorship can name after the owner, or a fictitious name can be used to enhance the business’ marketing.
The owner of a sole proprietorship is not required to file a separate business tax report. Instead, they will list business information and figures on their individual tax return. This can save additional costs on accounting and tax filing. The business will tax at the rates apply to personal income, not corporate tax rates.
Sole proprietorships can hire employees. This can lead to many of the benefits associated with job creation, such as tax breaks. Also, spouses of the business owner can employ without having to be formally declared as an employee. Married couples can also start a sole proprietorship, though liability can only assume by one individual.
Control over all business decisions remains in the hands of the owner. The owner can also fully transfer the sole proprietorship at any time as they deem necessary.
Some Advantages that proprietorship form of business offers are as follows!
1. Simple Form of Organization:
The proprietorship is the simplest form of organization. The entrepreneur can start his/her enterprise after obtaining licenses and permits. There is no need to go through the legal formalities. For starting a small enterprise, no formal registration is statutorily needed.
2. Owner’s Freedom to Make Decisions:
The owner, i.e. the proprietor is free to make all decisions and reap all the fruits of his labor. There is no other person who can interfere or weigh him down. Why is Intrapreneurship Better than Entrepreneurship?
3. 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.
Added to it, the proprietor is not bound to reveal or publish his accounts. In the 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.
4. 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.
5. 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.
Advantages of sole trading include that:
- You’re the boss.
- You keep all the profits.
- Start-up costs are low.
- You have maximum privacy.
- Establishing and operating your business is simple.
- It’s easy to change your legal structure later if circumstances change, and.
- You can easily wind up your business. Also learned, What are Disadvantages of Sole Proprietorship?
Multipoint Advantages of Sole-Proprietorship:
(i) Easy in Formation:
The sole proprietorship is the only form of organization where no legal formalities are requiring to perform. Anybody wishing to start a sole trade concern can do so without loss of time. This business is absolutely free from legal formalities. On the other hand, if a joint stock company is to form it needs services of experts to get it incorporate, and it involves a lot of labor and money.
(ii) Better Control:
In this form of organization one man is responsible for all type of activities. He controls all functions of the business. He himself takes decisions at the appropriate time. The authority and responsibility lie with one man. He cannot afford to be complacent in taking decisions. If the responsibility is divided, then there can a possibility of shifting obligation to other persons. (Everybody’s responsibility becomes nobody’s responsibility). Insole trade business, there is no such difficulty. The owner is all in all and he cannot escape his work. The business is controlled in an effective way.
(iii) Flexibility in operations:
A sole proprietorship concern is generally run on a small scale basis. In case a change in operation is requiring, it can be possible without involving much expenditure. Even if a new line of products is to take up, it will not involve many efforts. On the other hand, if the operations are on a large scale, then it becomes difficult to change the method of production.
A small-scale concern can adjust its production according to the changing demand pattern. It can increase and decrease its production as per requirements. Moreover, no legal formalities are requiring for making changes in operations. A joint stock company cannot go beyond its objective clause. Because of being flexible in operations, a sole trade concern is most suitable for industries dealing in fashionable and seasonal goods.
(iv) Retention of Business Secrets:
A sole trader maintains business secrets. Being the sole proprietor, he is not expected to share his trade secret with anybody else. He is not expected to publish his accounts. He can maintain secrecy from his competitors. Secrecy is very important for small-scale concerns.
(v) Easy to Raise Finance:
An individual entrepreneur is able to create goodwill for his business. This helps him to establish his creditworthiness in the market. Secondly, the liability in sole trade organization being unlimited, the creditors can have a claim over the private property of the owner. The creditors feel secure in extending credit to individual proprietors. Moreover, they try to repay the loans as quickly as possible so that they do not lose goodwill in the market. Once a sole trader loses his creditworthiness, he will not be able to get much help from the market.
(vi) Direct Motivation:
The proprietor takes the keen interest in the working of the business. He tries to put heart and soul into the business so to earn as many profits as he can. There is the direct relationship between efforts and reward. In other forms of organization, the profits are shared by more than one person. So everybody may not put in his best efforts.
(vii) Promptness in Decision Making:
All important decisions are taking by one person. He can take prompt decisions. He will not let an opportunity slip away. If more than one person is involving in decision taking than delay is bound to occur.
(viii) Direct Accessibility to Consumers:
Insole proprietorship the scale of operations is small. The owner can have direct contact with customers and employees. He can know the relations and preferences of consumers. It enables him to make necessary changes in the quality and design of his products. It will help him to boost his sales. He can also put emphasis on consumer service.
(ix) Inexpensive Management:
The sole trader is the owner, manager, and controller of the business. He does not appoint specialists for various functions, he personally supervises various activities and can avoid wastage in the business, he does not create managerial paraphernalia. In this way, managerial costs are saving to a large extent.
(x) No Legal Restrictions:
There are no legal requirements for starting a business. There are no special acts governing the work of a sole proprietor. The proprietor is not requiring to submit the results of his business to any authority. There is no restriction in changing the nature of the business. Even dissolution of the business can easily undertake. The tax liability on a sole trader is also low. He is tax as an individual and not as a business unit.
(xi) Socially Desirable:
One man business is generally on a small scale basis. Large numbers of sole traders have entered all types of business. It helps in avoiding concentration of wealth. Large-scale business leads to wealth accumulation in few hands. Sole trader business also provides competition to other businesses. The consumers will not be dependent upon big business houses. So, sole trade business is socially desirable.
The sole proprietorship form of organization offers the means of self-employment to those who do not want to serve others. As everyone cannot get a suitable job to earn his livelihood in a developing country, the individuals can easily start a small sized business unit as a sole trader.
(xiii) Healthy Relations with Employees:
A sole trader is in a position to maintain direct relations with his employees. This enables the employer and the employees to understand and appreciate the difficulties of each other. Moreover, a sole trader can quickly solve the grievances of his employees. This results in healthy relations between employer and employees which is of vital importance to the success of the business.
(xiv) The benefit of Inherited Goodwill:
A sole trader passes on the business goodwill to his successor. Technically a sole trade business is dissolving on the death of the owner but in reality, the same business is continuing by an heir. The goodwill which one person earns during his lifetime is also passing on to those who continue that business.
1. Easy and business Points – //www.legalmatch.com/law-library/article/advantages-and-disadvantages-of-sole-proprietorships.html and //www.yourarticlelibrary.com/sole-proprietorship/sole-proprietorship-features-advantages-and-disadvantages/40806
2. Trade Points – //www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/sole-proprietorship-advantages-and-disadvantages
3. Main/Multipoint – //www.yourarticlelibrary.com/business/advantages-and-disadvantages-of-sole-proprietorship/42037