Question

State any two merits of a Sole trading business.

Answer 1

Merits of Sole Trading Concern are as Follows:

1. Easy Formation: It is very easy to establish Sole Trading Concern because very few legal formalities are involved in formation. This business can be started without getting registered. Due to simple formation, there is a direct relationship between efforts and rewards.
2. The benefit of Secrecy: The owner and manager being the same person, the sole trader does not need to disclose his business secrets with any third person, nor does he need to publish his accounts, nor is he answerable to the third party.
3. Direct Motivation: The proprietor himself is the owner as well as the manager, there is a direct relationship between the efforts and rewards he puts in and the profits he makes. Since all the profits or losses are directly vested with himself, the sole trader is more aware of the efforts put in and can thus grow very fast.
4. Quick Decisions: Sole trader takes quick decisions on various matters relating to business operations. As this business has owner and decision-maker, the proprietor can take quick decisions and implement them immediately without consulting others.
5. Lower Cost: The sole trader has complete control over the business and he is also a manager himself. He controls all aspects of the business organization, so he ensures that there are less waste and better control on the expenses incurred as all expenses go out his own pocket.
6. Development: The risk and rewards are directly connected with only one person and due to the reason that he is completely responsible and involved with every aspect of his business. The sole trader takes extra effort to update his skills and learns through his experience constantly.
7. Flexibility in Operations: Since only one person has to make decisions, the owner or sole trader can be very flexible. Being the only decision-maker in business, he can make a quick change in the decision as per the changing circumstances. This is very important for the success of any business.
8. Limited Government Control: The activities of a sole trader are regulated by government and law to the minimum extent. Sole trading business is not required to get registered. There are no laws for operation, functioning or dissolution of a sole trading concern.
9. Credit Standing: Close contacts with customers help a sole trader to build up goodwill for himself. Banks and institutions can give loans easily due to the unlimited liability of the owner depending on his own assets.
10. Efficiency: As he is directly gaining from profits and is directly liable and responsible for losses, the proprietor runs his business with maximum efficiency with least wastages of time, efforts and resources.