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Proprietorship - Benefits & Drawbacks

Before taking any decision in respect of carrying any business under proprietorship, it is necessary to analyze its benefits and drawbacks , which are outlined below:

• Benefits
• Drawbacks

Benefits of Proprietorship

1. Easy to form:
   It is very easy to form and run the proprietorship business,, there is no requirement as to capital to register the business as in case of companies. However, the owner may be required to obtain a license or registration, whatever is necessary depending upon the nature of the business.
2. Single Ownership:
   A single individual owns the sole proprietorship. That individual owns all the assets and properties of the business. He alone bears all the risk of the business.
3. No sharing of profit & loss
   The entire profit out of the sole proprietor ship business goes to the sole proprietor. If there is any loss, it is also borne by the sole proprietor alone. Nobody else shares any of the profit and loss of the business.
4. One-man control
   The controlling power in a sole proprietorship business always remains with the owner alone. The owner or proprietor alone takes all the decisions to run the business. He may take decisions though a consultant or some advice, but the final decisions are always in his hand.
5. Easy to wind up
   It is also very easy to wind up the business. It is the owner’s decision to wind up the business at any time, no approval is required from any authority for winding up the business.
6. Direct motivation
   The profits earned belong to the sole proprietor alone and he bears the risk of losses as well. Thus, there is a direct link between the effort and the reward. If he works hard, then there is a possibility of getting more profit and he will be the sole beneficiary of this profit. Nobody will share this reward with him. This provides strong motivation for the sole proprietor to work hard.
7. Quick decisions
   In a sole proprietorship business the sole proprietor alone is responsible for all decisions. He is free to take any decision on his own. Since no one else is involved in decision making it becomes quick and prompt action can be taken on the basis of the decision.
8. Holding of business secrets
   Business secrecy is an important factor for every business. It refers to keeping the future plans, business strategies, etc., secret from outsiders or competitors. In the case of sole proprietorship, the proprietor can keep his plans and other business secrets to himself since the management and control are in his hands only.
9. Better business relations
   The sole proprietor is always in a position to maintain good personal contact with the customers and employees. Direct contact helps the sole proprietor to know the individual likes, dislikes and tastes of the customers. It also helps in maintaining close and friendly relations with the employees and thus, the business can run smoothly.

Drawbacks of Proprietorship

1. Limited capital
   Sole proprietorship business suffers because of limit availability of funds, the owner arranges for the required capital for the business on its and since , he is the only person behind the business, therefore Banks at times are also reluctant to provide finance .
2. Unlimited liability:
   The biggest advantage of sole proprietorship is that in case the business don’t have sufficient funds to pay out its liability, than his personal property may have to be used to pay for those. This generally discourages the sole proprietor from taking risks. He thinks cautiously while deciding to start or expand the business activities.
3. Lack of continuity:
   The existence of a sole proprietorship business is dependent on the life of the proprietor. Illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.
4. Limited size:
   There is a limit beyond which it becomes difficult for a sole proprietor to expand the business activities. It is not possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit.
5. Lack of managerial expertise:
   A sole proprietor may not be an expert in every aspect of management. He/she may be an expert in administration, planning, etc, but may be weak in marketing. Again, because of limited financial resources it is also not possible to employ a professional manager. Thus, the business lacks benefits of professional management.

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