Question

Explain the merits of a sole proprietorship firm?

Answer 1

1. Ease in formation and closure of business: There are hardly any legal formalities to be fulfilled for setting up a sole proprietorship firm. However, if a proprietor is dealing in drugs and liquor products, then a licence has to be acquired. The procedure for closing down a sole proprietorship firm is also hassle-free and easy.
2. Quick decision-making: A sole proprietor enjoys complete control over the business. This makes decision-making quick and easy.
3. 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 in the business. Thus, this direct link between efforts and rewards motivates the sole proprietor to operate the business efficiently and effectively.
4. Motivation to work: The sole proprietor receives all the profits and bears all losses, so there is a direct relationship between effort and reward, which motivates hard work.
5. Independent control: The sole proprietor enjoys complete freedom of action, with full authority and personal supervision. They exercise control over all business functions. Personal supervision helps to improve the efficiency of the business.
6. Secrecy of Affairs: The proprietor is not required to publish accounts and can keep business matters confidential. Complete confidentiality of business affairs provides them with greater competitive strength.