Sole Proprietorship

A sole trader or a Sole Proprietorship is a small business owned and usually managed by a single person. It is the oldest and still the most popular form of businesses worldwide.

The popularity of sole proprietorships due to the advantages of this types of businesses compared to other forms of businesses. The advantages include:

1. Easy to set up - It is easy to start a sole trader business since the capital required to start this type of business is relatively small.
2. Easy to manage - Small businesses are easy to manage. Sole trader has full control, therefore he finds it easy to take decisions and enforce them.
3. Sole Trader is his own boss - Sole trader does not have to consult anybody to take any decisions and he is the only owner of the business. Therefore he keeps the profit to himself too, without having to share it with anybody.
4. Personalized services - A sole trader usually can keep closer relationships with workers and customers. It usually happens in a friendly enviroment rather than a formal office environment.
5. Flexibility - It is easy for a sole trader to switch and adjust his business by taking consideration of the market factors since decision making is easy and swift.
6. Business secrecy is kept at maxium.

Sole proprietors have certain disadvantages too:

1. A sole trader's skills and abilities are limited to he himself. Specialization and economies of scale is difficult.
2. Limited Capital - Capital for the sole trader business comes from the owner's own savings. Therefore it is limited. The banks may not be so willing to give loans to a single person.
3. A major disadvantage is that the liability of a sole trader is unlimited. He may lose his own properties to pay the creditors in case of financial distress.

Remember: Sole Proprietorships, Partnerships, Private and Public Limited Companies are all in Private Sector of the Economy.

Where as Public Corporations are in Public Sector.

Next Topic: Partnerships

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