Sole Proprietorship Business

Definition: A sole proprietorship, also known as a sole trader ship, individual entrepreneurship 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 and may employ
other people. As an example, local grocery store, a local clothes store, an artist, freelance writer, IT
consultant, freelance graphic designer, Dairy Farmer etc.

Advantages and Disadvantages of Sole Proprietorship Business:

Every proprietorship or business has some Advantages and Disadvantages.

Advantages of sole trading include that:

I. Profit: Since there are no partners in this business, all the profits of the business are kept by
the entrepreneur himself.
II. Decision making & Management: As there is only one owner in that proprietorship, there is
no room for conflicting options. So, decisions can be made quickly. The owner always tried
to improve the business through efficient management. As a result, business is conducted
efficiently.
III. Capital formation: The owner takes initiative to form the company by seeking his capital.
That’s why these institutions can often be run with little capital and capital starts to build up
over time.
IV. Customer satisfaction: The profit of the business organization depends on the quality of the
product and the satisfaction of the customer. The owner always alerts to this matter. The
owner believes in the principal of “Customer is always right”. Striving for customer
satisfaction.
V. Reduction of wastage: In a sole proprietorship business the owner supervises himself.
Waste is reduced from the use of raw materials to the production of the final product. High
quality products and services are produced using advanced equipment and materials.
VI. Confidentiality: There is high secrecy in the sole proprietorship type of business.
Confidentiality is maintained as no one but the owner can know about the business. There is
no chance of leakage of business secrets to competitors.

Disadvantages of sole trading include that:

I. Excess of risk: The owner has to bear more risk as there is no one to share the risk with.
Harm in wrong if you have to be completely bankrupt.
II. Lack of skilled employees: It is not possible to appoint skilled employees in these
institutions. Because the size of the organization is small. That’s why it is not possible to pay
more employees.
III. Decrease Efficiency: Everyone's knowledge and skills are limited. As the size of the
organization increase, the efficiency of the owner decrease. Because the owner alone cannot
focus on everything.
IV. Unlimited liability: The owner has to look after all aspects of the business by himself. All the
responsibility for making day-to-day business decisions is his.
V. Capital contributions: As a sole proprietor, owner is responsible for paying for all the capital
needs office equipment, for example—of the business. You may also find it harder to get a
 loan from a bank, since lenders typically view sole proprietor businesses as risky
investments.
VI. Increased taxes: As a sole proprietor, you have to pay self-employment tax on top of
personal income tax. It can also be trickier to figure out how much you will owe in taxes
because you are combining business and personal taxes. To avoid paying a larger-than-
expected tax bill at the end of the year, the IRS recommends estimating and paying your
taxes quarterly.
 Partnership Business
Definition: A partnership is an arrangement where parties, known as business partners, agree to
cooperate to advance their mutual interests. The partners in a partnership may be individuals,
businesses, interest-based organizations, schools, governments or combinations. It is a form of
business where two or more people share ownership, as well as the responsibility for managing the
company and the income or losses the business generates. As a example, Fashion designing etc.

Advantage and Disadvantage of Partnership Business:

Advantage of Partnership Business