In order to supply the varying needs of the community, and make the consumer enjoy their output of production, many form of Business units have developed rapidly. In Nigeria, and nearly all west Africa countries, the commonest form of business unit is the sole trader.
Sole Proprietorship Defined
A sole trader is the form of business in which the control, finance, organization and management is solely done by a single person, who invariably is the owner of the business. This means that in the sole
proprietorship, the individual owns the business, assumes all risk and operates the firm for his own personal interest. Additionally, this form of ownership is ideally suited for the small business, especially when it is just beginning ( since flexibility and personal attention are extremely important. The sole trader was the earliest form of business organization, and at present, he is still the most usual form, particularly in retail trade.
Apart from the ordinary retail trade, the sole trader can be found in such service trades as decorator, artist, painter, mechanics, plumber, electricians and other professional trades such as architect, surveyor, business consultant, accountant, doctor, and so on. It is interesting to note that a sole trader deals mainly on commodities that are regular in demand, e.g foodstuffs, provisions small- size contract.
Characteristics Of Sole Trader
Some of these characteristics of the sole trader are:
1. Ownership: This is by one person.
2. Management: Day-to- day management is usually by the owner, but not necessarily so.
In larger concern, some element of delegation is essential and in a few cases the owner may delegate managerial completely and entirely but retain overall control of policy.
3. Finance: This may be provided entirely by the owner but frequently part is in the form of borrowed funds.
4. Size: The business of a sole trader is usually small, but is not necessarily so. The features of small-scale trading, therefore, may or may not apply.
5. Place: Any place is well suited for the business.
6. Types of Business: The sole trader deals on a variety of goods and services.
Advantages Of Sole Trader
The advantages of trading as a sole trader may be as follows
1. Managerial freedom
2. Business personality
3. Simple management
4. Ownership of all profits
5. Personal satisfaction
6. Freedom and flexibility
7. Tax savings
8. Excellent credit standing
10. Ease and low cost of organization and dissolution
11. Quick decision making
12. Formulation of policies
The Disadvantage of trading as a Sole will include the following
1. Unlimited liability
2. Responsibility for decision
3. Difficulties of outside finance
4. Indispensability of the owner
5. Problems upon dissolution
6. Limitation on expertise
7. Difficulties of management
8. Lack of opportunity for employees
9. Lack of continuity
Advantages Of Sole Trader Explained
Managerial freedom: Decision- making can be effected quickly because it may not be necessary to consult anyone else. Any consequences of action are the sole responsibility the owner.
Simple Management Structure:
The unit is probably small enough to make small-scale management possible. The difficulties of management often met in large organizations are thus avoided.
Ownership of all profit:
The single proprietorship allows the owner to receive 100 percent of the profits earned in the business. This is not the case in either the partnership or the corporation since profits must be shared with one or
The concept of being ones own boss may be the most prominent reason for the decision to establish the sole proprietorship.
Special taxes that are levied against the corporation, causing double taxation, are not applicable in the sole proprietorship. However, it should not be construed that the proprietor is exempted from normal individual and Business taxes on payroll, property, and income.
Excellent credit standing:
Because the owners liability extends beyond his business assets to his risk than a corporation whose debt- playing ability relies solely on business operations.
This sole proprietorship is not legally required to publish it’s financial condition, nor is it required to make other confidential information public. This helps the sole proprietor maintain a competitive business position.
Ease And Low Cost Of Organization And Dissolution:
A prime advantage of this form of ownership is the ability to enter into a business agreement with little red tape or legal complications. Though some types of sole proprietorship form of ownership require licensing by the authority or state, most business in this form of ownership can operate without that approval. Dissolution of the firm is also accomplished quite easily as no legal procedure is needed
Some Disadvantages Explained
In the event of the insolvency of the business the owner will be solely responsible for making good the deficiency from his personal estate.
Responsibility For Decision
The benefit of consultation with fellow owners are absent. In a large concern, the advice of managers etc, may be sought, but any decisions must be the sole responsibility of the owner.
Difficulties of outside finance:
It may be impossible to obtain finance without surrendering personal control by admitting a new partner. Lenders may be reluctant to provide additional finance because they could resort to only one person in the event of financial failure.
Indispensability Of The Owner:
Undue absence of the owner will result in loss of personal direction during that time.
Problems Upon Dissolution.
There would be no assurance of continuity if the owner died or retired. Thus, if it was necessary to sell the business there would be no sale able goodwill if it could not be sold as a “going concern”.
Limitation On Expertise.
The owner may not posses all the attributes required to run a business. An expert engineer, for instance, may have little financial acumen.
Limited Financial Resource
Because the individual is the sole owner of the business, he must rely on his own ability to borrow in order to finance the operations of his firm. Banks and other leading institution may hesitate to lend large sums of money to single proprietorship. Also, creditors might be unwilling to sell large quantities of items to a business that is run and supported by one individual.
Difficulties Of Management
Because of the smallness of the firm, the individual owner must assume the responsibility of a diversification of managerial tasks, ( purchasing, selling merchandising, financing, extending credit, employing people, etc). Most failures of the sole proprietorship are directly attributed to a lack of such managerial capabilities.
Lack Of Opportunities For Employees
Basically, employees of a small firm must be satisfied with the continuing status of their position.
In general, they will always remain employees of the firm. Because ambitious employees may be unwilling to stay for an extended period of time in a business where the opportunity are so limited, the sole proprietorship may be unable to keep highly qualified individuals even though it offers
good salaries and fringe benefits.
Lack Of Continuity
The death of the owner of a sole proprietorship will terminate the life of the business. An individual may create a fine business, but because of a physical ailment, he may not be able to continue work. Many firms have dissolve because the business is profitable only as long as the owner is able to run it.
Sources Of Capital Available To Sole Trader
The sole trader can obtain capital from any of the following sources.
1. From his personal wealth and saving
2. Savings of friends
3. From banks (bank loan and bank overdraft) insurance companies and other
4. Obtaining goods on credit etc
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