Question

Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation. Why?

Answer 1

Despite the limitations in terms of size and resources, many people prefer sole proprietorship over any other forms of business primarily because of the numerous benefits associated with the sole proprietorship business form.

The following are a few important benefits that a business person enjoys by being a sole proprietor.

(a) Ease in formation and closure: There are hardly any legal formalities that are required to be fulfilled for setting up a sole proprietorship firm. However, if a proprietor wants to deal in drugs and liquor, then he or she must to acquire a licence. Just as setting up a sole proprietorship firm is easy, its closure is also hassle-free.

(b) Quick decision making: A sole proprietor enjoys complete control over the business, facilitating quick and easy decision making.

(c) Direct incentive: A sole proprietor is the sole bearer of all types of risks associated with the business and at the same time is the single recipient of all the profits and gains earned from the business. Thus, it is due to this direct link between the businessperson’s efforts and the rewards which keeps this individual motivated to operate the business efficiency and effectively.

(d) Flexibility in operations: A sole proprietorship firm is highly flexible in operations. It can adapt itself to various situations, and vital changes can be incorporated, as per the dynamism of the business environment. The reason for the high degree of flexibility can be attributed to the fact that a sole proprietor is the only person who is involved in every aspect of the business.