Advantages And Disadvantages Of Sole Trader Pdf

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The sole trader business structure is the most popular in the UK. In there were approximately 3. The sole trader structure has been popular due to its many advantages and the ease of setting up. Sole trader business owners are known as self-employed and most freelancers opt for this structure of the business. There are both advantages and disadvantages of the sole trader business structure that need to be taken into account before making any business decisions.

Advantages and Disadvantages of a Sole Trader

A sole proprietor business is established, owned, financed and controlled by a single person who is known as sole trader or sole proprietor. Such a business run by sole trader or sole proprietor is known as sole trade or sole proprietorship.

Easy to Form 2. Effort-Reward Relationship 3. Full Control 4. Quick Decisions 5. Economical and Efficient Operations. Personal Touch. Keep the Business Simple, Dynamic and Flexible 8. Society Gains as a Whole 9. Sole Beneficiary of Profits Benefits of Small-Scale Operations.

Retaining Secrecy Social Desirability Tax Advantage. Minimum Government Control Direct Motivation. Catering for Individual Tastes Credit Standing Independent Way of Life Generation of Social Virtues Diffusion of Business Ownership. Easy Organization Diffusion of Economic Concentration Opportunity to Develop Personality and Earn Respect.

Small Size 2. Limited Shelf Life 3. Lacks Professional Skills and Talent 4. See the Big Picture 5. Unlimited Liability. Growth Prospects. Limitation of Management Skills 8. Limitation of Capital 8. Weak Bargaining Position 9.

Limited Scope for Expansion Risk of Wrong Decisions. No Large-Scale Economies Limited Scope for Employees. No Check and Control Restricted Growth. Proprietary concerns can be formed easily and quickly. Very few legal formalities need to be fulfilled.

There is no need to go for any registration or enter into an agreement with someone. One can form it and dissolve it quickly. Proprietary ventures give a kick in the belly. You can burn the candle of energies and make money. You take the risk and get rewarded. The effort-reward relationship often excites people to chase creative ideas and turn them into successful ventures. The owner has full control over everything.

He decides everything in the best interests of the business. Right or wrong, he takes charge of the situation. Proprietors can put things in order quickly if something goes wrong.

If opportunities come his way, he can exploit them readily. He can give a fat discount to a loyal customer on the spot if he feels that such a step brings in additional revenues in future. Small businesses are known for their quick and effective decisions.

The owner can put resources to best use. He can take steps to eliminate wastages of all kinds. He can control the cost of running the show. He can play with his ideas and get them going. He can convert his dreams into concrete realities. He can make things happen. He can use his brilliance to good advantage. Keep the Business Simple, Dynamic and Flexible:. The owner can cut everything according to the cloth available.

If there is demand, he can increase the scale and reach. The proprietor need not share business secrets with any one. He need not place all his cards on the table at any point of time. Small ventures benefit society a lot. Ownership is diffused. If the venture turns successful, it generates employment. Customers get what they want in nearby places. Sole proprietorship suffers from the following drawbacks or cons:.

By its very nature, proprietary concerns cannot grow big. They have limited means. They cannot expand operations in a big way. As a result, they do not enjoy the economies of scale. Customers, in the final analysis, do not gain from such miniscule concerns in the long run. You never know when a big Mall will come nearby and kill all small players.

Small businesses have limited life spans. They exist for a while and disappear within no time if customers turn into mall rats shopping always from big malls. The proprietor lacks professional skills, talent and expertise. He has limited knowledge and does not have the ability to gauze competition, changes in fashions and customer tastes and preferences, trends in economy etc. He cannot run the show in a professional way. As a result he might take inappropriate decisions in a hurry, looking at things from a narrow perspective.

If the small business owner fails, he has to swallow all losses. The liabilities of a firm might eat away the accumulated wealth of the owner almost instantaneously. The risk of unlimited liability forces many a sole proprietor not to expand operations beyond a point. Business cannot go beyond a point for a variety of reasons—limited capital, owner lacks needed skills and competencies required to run the show on a large scale, unlimited liability compels many owners to remain small etc.

The proprietary concern, therefore, does not grow to an optimum level and enjoy the economies of scale. A sole proprietorship business is easy to form. There is hardly any legal formality involved in setting up this type of organisation. It is not governed by any specific law. It is only required that the business activity should be lawful and comply with the rules and regulations laid down by local authorities.

Also, the business can be closed whenever desired by the proprietor without any legal complications. The sole proprietor can also bring about changes in the size and nature of activity. This gives flexibility to business. The sole proprietor is the only person to whom the profits belong. There is a direct relation between effort and reward. This motivates him to work hard and bear the risks of business.

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A sole proprietor business is established, owned, financed and controlled by a single person who is known as sole trader or sole proprietor. Such a business run by sole trader or sole proprietor is known as sole trade or sole proprietorship. Easy to Form 2. Effort-Reward Relationship 3. Full Control 4. Quick Decisions 5. Economical and Efficient Operations.

The most common form of ownership, it accounts for about 72 percent of all U. As sole owner, you have complete control over your business. In exchange for assuming all this responsibility, you get all the income earned by the business. For many people, however, the sole proprietorship is not suitable. The flip side of enjoying complete control, for example, is having to supply all the different talents that may be necessary to make the business a success.


The sole trader advantages and disadvantages and how they compare to some other business structures. Some advantages include being.


Advantages and Disadvantages of Sole Proprietorship

A sole trader business has many advantages and disadvantages. However, it's easy to set up and is most favoured by "one man bands" who offer household services. These tradesmen are self-employed as the sole owner of the business concerned.

The IRS expects self-employed individuals to pay federal income tax throughout the year, and if you don't pay estimated tax each quarter, Uncle Sam can charge you interest and impose nonpayment penalties. As long as you earn income in a given quarter, you owe tax for that quarter. You must pay federal income tax, along with Social Security and Medicare taxes, known collectively as self-employment tax. The amount of federal income tax you pay is based on your adjusted gross income. The most common and simplest form of business is a sole proprietorship.

Starting a small business can be an intimidating process: You need to come up with a business strategy, solicit customers, and manage short- and long-term finances. Plus, sorting through the paperwork, forms, and registration steps to legally set up your business can be even more frustrating. To explain, other business structures , such as limited liability corporations LLCs , require you to register with your state government before you can do business.

Sole Trader

A sole proprietorship , also known as the sole trader , individual entrepreneurship or proprietorship , is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work 'alone'—it is possible for the sole trader to employ other people. The sole trader receives all profits subject to taxation specific to the business and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. It is a "sole" proprietorship in contrast with partnerships which have at least two owners. A sole proprietor may use a trade name or business name other than their or its legal name. They may have to legally trademark their business name if it differs from their own legal name, the process varying depending upon country of residence.

When thinking about opening your own business , you might well have given some consideration to becoming a sole trader. Sole trader, also known as a sole proprietor is one of the types of business available for use within the UK. It is also one of the most popular, for a number of reasons, including the ease with which a business can be set up using this form. However, there are pitfalls to be aware of.

Advantages and Disadvantages of Sole Proprietorships
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  1. Ligia L.

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