Features of sole proprietorship

Sole proprietorship could be defined as the business organization both owned and controlled by a man. The owner is called the sole proprietor or sole trader. This type of business may be operated by the proprietor (owner) alone or it may employ several people, but the main feature of it is that it is owned by one person and tends to be a small business. It is the oldest, simplest and commonest form of business in Nigeria. Sole proprietors tend to have only a few employees, and less machinery or capital than larger business. Examples are private schools, hair salon, barber’s shop etc.

Features of Sole Proprietorship

Sole proprietorship business is characterized by the following:

1. It owned and controlled by one man.
2. It has unlimited liability.
3. It is not a legal entity.
4. Its main aim is to make profits.
5. It requires small capital.
6. It allows the owner to make decision alone.

Sources of Capital for Sole Proprietorship

A sole trader has many ways to secure funds needed in running the business. Some of the sources are enumerated below.

1. Personal savings.
2. Borrowing from relatives like friends, family, etc
3. Plough back profits, i.e. profits made last year but not spent till this year.
4. Loans from the commercial banks, if there is a collateral security.
5. Trade credits.
6. Grants from government.

EVALUATION

1. State the meaning of sole proprietorship
2. List five sources of capital to the sole proprietorship.

Advantages and Disadvantages of Sole Proprietorship

Advantages of Sole Proprietorship

(i) Low capital requirement: The capital requirement to start is small.

(ii) It is easy to Start: One-man business is easy to establish because no rigorous legal or administrative formalities are required before business can start.

(iii) Cordial relationship exists between the owner, staff and customers.

(iv) Quick Decision making: The sole proprietor does not need to consult anybody before decisions are taken.

(v) Privacy and secrecy: There is no legal requirement that books of account should be opened for public inspection, or for the inspection of anybody.

(vi) It can adapt to any environment: One-man business can be established in any environment where the clientele (customers) are available.

(vii) Easy to Manage: The business is small, making its management and organization simple and easy.

(viii) All profits belong to the owner.

Disadvantages of Sole Proprietorship

(i) Inadequate Capital: Due to inability of the sole proprietor to present collateral security, he may not be able to secure funds from banks. This will limited the amount of capital in his possession.

(ii) Limited Expansion: As a result of little capital available in sole proprietorship business, it is difficult for the business to grow.

(iii) Unlimited Liability: If the business fails, the proprietor runs the risk of losing his business assets as well as his personal possessions. This is because the sole proprietorship is not a legal entity that is separate from its owners.

(iv) No continuity: The death of the sole proprietor may bring the business to an end, especially if direct services are involved.

(v) Unwise and rash decisions may often be taken; This is because the proprietor is not required to consult anybody before taking a decision.

(vi) Inability to retain Professionals: Due to poor staff welfare, the sole proprietor cannot retain professionals that are highly paid.

(vii) He bears all the risk: A sole proprietor is a risk bearer since he alone dictates how the business is controlled and managed. This means that any mistake on his part will adversely affect the business.

(viii) Lack of division of labour.

EVALUATION

1. Outline the advantages and disadvantages of sole proprietorship.
2. Discuss the term ‘sole proprietorship.’ What are the major sources of finance for sole proprietorship?
3. Outline the advantages and disadvantages of sole proprietorship.
4. It is said that in Nigeria, the number of sole proprietors continues to increase every year. Why do you think this is so?
5. State five features of sole proprietorship.