Characteristics and Merits & Demerits of Sole Trading Concern

Characteristics of Sole Trading Concern

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  • Sole ownership or proprietorship
  • Unlimited liabilities
  • Sole management and control
  • No legal existence
  • Maintain Secrecy
  • No sharing of profits/Loss
  • Independent decision
  • Limited area of operation
  • Undivided risk and responsibility

Sole ownership or proprietorship:

The sole trading concern is established and managed by the single person. The whole amount of investment is being made by a single person. The sole trader individually invests and earn the profit.

Unlimited liability:

The liabilities of sole trading concern are unlimited. It means, in the case of loss of business the sole trader has to sell his/her personal property to pay a debt. Sole trading concern has liability which is not limited to the property of a business.

Sole management and control:

In these form of business owner and manager are same. The owner himself/herself directly involve in business activities and manages the business affairs. The owners also engaged in the control of the various activity of a business.

No legal existence:

The sole trading concern is not required to register company at register office legally. In Nepal, it can be established in the development of commerce and industry. Therefore, it does not exist in the eye of law. The owners of the business are one and same.

Maintain Secrecy:

In this business, it is very easy to maintain the secrecy of information. The information relating to business are not required to share with other. Therefore, this form of business has highest level of information secrecy.

No sharing of profits:

Sole trading concern is established and managed by the single person. Profit is not required to share with another. Sole trader individually enjoys the profit and bears the risk as well by himself.

Independent Decision:

The sole trader can freely make the decision. He or she need not take consent of others while making the decision. Therefore, in this form of business decision making is fast.

Limited area of operation:

Since the sole trading concern is invested by the single person, there is less scope for expansion and growth of it.Sole trader individually can't manage the big size of a business and he can't manage the big size of a business and he cannot invest for this as well.

Undivided risk and responsibility:

In this business, risk and responsibility can be shared with another person. The sole trader individually takes all kinds of risk. Sole traders personally responsible for accomplishing all activities of a business.

Advantage of Sole Trading Concern

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Source: www.slideshare.net
  1. Easy to commence and dissolve
  2. Quick decision
  3. Secrecy
  4. Flexibility
  5. Personal supervision and control
  6. Direct motivation
  7. Easy to get loan
  8. Economy
  9. Social benefits

Easy to commence and dissolve:

A sole trading concern is owned, managed, controlled and invested by a single person so that it can easily establish and close it down whenever he/she wishes. There are limited and simple legal formalities to start and close the business.

Quick Decision:

A sole trader can take business decisions by himself immediately according to his experiences and efficiency. He does not have to consult anybody to take decisions so that decision is quick and timely in sole trading concern.

Secrecy:

Secrecy of business matter is key to achieve the goals. A sole proprietor is all-in-all of his business and he is also not required to publish any financial statements, he can tightly maintain business secrecy.

Flexibility:

The sole trading concern is flexible. The owner has a greater degree of flexibility to run his business in sole trading concern. So, he can invest more capital and withdraw money or goods as per his necessity. Flexibility helps him to take benefits of the favorable situation.

Personal supervision and control:

The sole traders act as both owner and manager, he can easily maintain and develop personal and business relations with all concerned parties like customers, suppliers, employees etc. which helps in the goodwill of the concern.

Direct Motivation:

The efforts of sole trader and his reward have the direct relationship in the sole trading concern. The sole trader enjoys the total profits of the business alone. It directly motivates him for a hardworking and efficient management of a business.

Easy to get loan:

The sole trading concern is a one man business organization. It is easy to start and close. A sole trader has personal relations with a large number of people. He can easily convince other people to provide loan to him.

Economy:

The owner being both manager and employee can save some office and administrator expenses and attains economy operations of a business. Family members can also be used for the personal job in sole trading concern.

Social benefits:

Sole trading concern has a number of social benefits. It gives employment to other people of the society. The sole trader earns a better status in the society. He can involve himself in social service, provide employment, give donations and proper sponsor to social functions. Hence, it provides benefits to the society.

Disadvantages of Sole Trading Concern

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Source: www.slideshare.net
  • Limited capital
  • Limited managerial ability
  • Unlimited liability
  • Loss in absence
  • Uncertain life
  • Limited scope for expansion
  • Limited scope for opportunity

Limited capital:

Its capital is limited due to the investment of a single owner. Such limited capital is insufficient for large-scale production and marketing of goods and services.

Limited managerial ability:

It is managed by a single owner who may not have adequate managerial skills and technical abilities. So, it may face various managerial deficiencies.

Unlimited liability:

The sole trader does not have limited liability to his business capital. The owner must pay the liability of his business even by selling his private properties if the assets of the business are not sufficient to meet such liabilities.

Loss in absence:

It may come to close if the proprietor remains absent from his business due to his illness or other reasons. So, if the owner or proprietor is absent, the business may face the loss.

Uncertain life:

Its life is closely connected with the life of the owner. So, it can be terminated any time due to death,lunacy, insolvency or disability of the owner.

Limited scope of expansion:

It has the limited scope for expansion and development. Due to the limited amount of capital and managerial skills, its activities cannot be diversified.

Limited scope for opportunity:

It offers limited opportunities to his employees. Due to the limited scope of expansion and development of business, its employees get limited opportunities for training, higher studies, career development, attractive salaries and other benefits.

References:

Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal. Business Studies. Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al. Business Studies. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.

  1. The liabilities of sole trading concern are unlimited.
  2. The sole trading concern is not required to register company register office legally.
  3. The sole trader can freely make the decision.
  4. The sole trading concern is flexible.
  5. The sole trading concern is a one man business organization. 

The advantages of sole trading concern:

  1. Easy to commence and dissolve
  2. Quick decision
  3. Secrecy
  4. Flexibility
  5. Personal supervision and control
  6. Direct motivation
  7. Easy to get loan
  8. Economy
  9. Social benefits

The disadvantages of sole trading concern are:

  • limited liability
  • Limited managerial ability
  • Unlimited liability
  • Loss in absence
  • Uncertain life
  • Limited scope for expansion
  • Limited scope for opportunity

The advantages of sole trading concern are explained below:

  • Easy to commerce and dissolve:
    Dissolution of  sole trading concern equally simple. There are no legal formalities to start and close the business. The owner can start his business after its registration with the concerned office and close it down in his/her wishes.

  • Quick decision:
    A sole trader can take business decisions by himself immediately, according to his experiences and efficiency. He does not have to consult anybody to take decisions so that decision is quick and timely in sole trading concern.

  • Secrecy:
     Business secrecy is key to business success. This is no legal regulation regarding the disclosure of business information. A sole proprietor is all-in-all of his business and he is also not required to publish any financial statements, he can tightly maintain business secrecy.

  • Flexibility:
    In a sole trading concern, the owner has a much greater degree of flexibility to run business. No legal formalities are required for making changes in operations. . Flexibility helps him to take benefits of the favorable situation.

  • Personal supervision and control:
    The proprietor is able to supervise every work of the business himself. This helps to build up close  and cordial  relations with the employees.  The sole traders act as both owner and manager, he can easily maintain and develop personal and business relations with all concerned parties like customers, suppliers, employees etc. which helps in the goodwill of the concern.
     
  • Direct motivation:
    The direct relation between the effort and reward serves as a powerful incentive to the proprietor to manage the concern efficiently. The sole trader enjoys the total profits of the business alone. It direct motivates him for a hardworking and efficient management of a business.

  • Easy to get loan:
    The sole trading concern is a one man business organization. It is easy to start and close. A sole trader has personal relations with a large number of people. He can easily convince other people to provide loan him.

  • Economy:
    The owner himself works as the manager and an employee of his business. The owner being both manager and employees can save some office and administrator expenses and attain economy operations of a business.

  • Social benefits:
    Sole trading concern has a number of social benefits. It gives employment to other people of the society the sole trader earns a better status in the society. He can involve himself in social service, provide employment, give donations and proper sponsors social functions. Hence, it provides benefits to the society.

The disadvantages of sole trading concern are:

  • Limited capital:
    Due to the investment of  single owner, the capital of a sole trading concern is limited. Such limited capital is insufficient for large-scale production and marketing of goods and services.

  • Limited managerial skills:
    A sole trading concern is managed by a single owner who may not have adequate managerial skills technical abilities. So, it may face various managerial deficiencies.

  • Unlimited liability:
    The liability of a sole trader is not limited to his invest capital.  It means in the case of loss of business the sole trader has to sell his/her personal property to pay a debt. Sole trading concern has liability which is not limited to the property of a business.

  • Loss in absence:
    It may come to close if the proprietor remains absent from his business due to his illness or other reasons. In the absence of proprietor,may lead to heavy losses. Employees may not be efficient or they may not take sincere interest. 

  • Uncertain life:
    The life of sole trading concern is closely connected with the life of the owner.  So, it can be terminated any time due to death. lunacy, insolvency or disability of the owner. The successors may not have the same degree of self-reliance and ability.

  • Limited scope of expansion:
    It has limited scope of expansion and development.  Due to the limited amount of capital and managerial skills, its activities cannot be diversified.

  • Limited scope of opportunity:
    Due to the limited scope of expansion and development of the business, its employees get limited opportunities for training, higher studies, attractive salaries and other benefits. 

The following are the characteristics of sole trading concern:

  • Sole ownership or proprietorship:
    A sole proprietorship is wholly owned by one individual. The individual supplies the total capital from which his own wealth or from  borrowed funds. The sole trader individually invests and earn the profit.

  • Unlimited liability:
    The liability of the owner is not limited to his investment. Proprietor is liable for the debts of business. It means in the case of loss of business the sole trader has to sell his/her personal property to pay a debt. Sole trading concern has liability which is not limited to the property of a business.

     

  • Sole management and control:
    The owner manages and controls whole affairs of the business.  The owner himself/herself directly involve in business activities and manages the business affairs. The owners also engaged in the control of the various activity of a business.

  • No legal existence:
    A sole proprietorship is not a legal entity, the owner, and the business has the same legal status in the eyes of law. The owners of the business are one and same.

     

  • Maintain Secrecy:
    In this business, it is very easy to maintain the secrecy of information. The information relating to business are not required to share with other. Therefore, this form of business and highest level of information secrecy.

  • No sharing of profits:
    As sole trading, a concern is established and managed by the single person. The proprietor himself gets all the profit, he doesn't have to share profit to others. As well as if losses has to be beared by himself  too.

  • Independent decision:
    A sole trading concern is an independent organisation. The sole trader can freely make the decision. He is the supreme judge for all the business matters. Therefore, in this form of business decision making is fast.

  • Limited area of operation:
    The resources of the sole trading concern is limited.Sole trader individually can't manage the big size of a business and he can't manage the big size of a business and he cannot invest for this as well.

  • Individual risk and responsibility:
    A sole investment, management, and control, the owner himself bears the whole risk of the business. Sole traders personally responsible for a accomplish all activities of a business.

The advantages of sole trading concern are explained below:

  • Easy to commerce and dissolve:
    Dissolution of  sole trading concern equally simple. There are no legal formalities to start and close the business. The owner can start his business after its registration with the concerned office and close it down in his/her wishes.

  • Quick decision:
    A sole trader can take business decisions by himself immediately, according to his experiences and efficiency. He does not have to consult anybody to take decisions so that decision is quick and timely in sole trading concern.

  • Secrecy:
     Business secrecy is key to business success. This is no legal regulation regarding the disclosure of business information. A sole proprietor is all-in-all of his business and he is also not required to publish any financial statements, he can tightly maintain business secrecy.

  • Flexibility:
    In a sole trading concern, the owner has a much greater degree of flexibility to run business. No legal formalities are required for making changes in operations. . Flexibility helps him to take benefits of the favorable situation.

  • Personal supervision and control:
    The proprietor is able to supervise every work of the business himself. This helps to build up close  and cordial  relations with the employees.  The sole traders act as both owner and manager, he can easily maintain and develop personal and business relations with all concerned parties like customers, suppliers, employees etc. which helps in the goodwill of the concern.
     
  • Direct motivation:
    The direct relation between the effort and reward serves as a powerful incentive to the proprietor to manage the concern efficiently. The sole trader enjoys the total profits of the business alone. It direct motivates him for a hardworking and efficient management of a business.

  • Easy to get loan:
    The sole trading concern is a one man business organization. It is easy to start and close. A sole trader has personal relations with a large number of people. He can easily convince other people to provide loan him.

  • Economy:
    The owner himself works as the manager and an employee of his business. The owner being both manager and employees can save some office and administrator expenses and attain economy operations of a business.

  • Social benefits:
    Sole trading concern has a number of social benefits. It gives employment to other people of the society the sole trader earns a better status in the society. He can involve himself in social service, provide employment, give donations and proper sponsors social functions. Hence, it provides benefits to the society.


The disadvantages of sole trading concern are:

  • Limited capital:
    Due to the investment of  single owner, the capital of a sole trading concern is limited. Such limited capital is insufficient for large-scale production and marketing of goods and services.

  • Limited managerial skills:
    A sole trading concern is managed by a single owner who may not have adequate managerial skills technical abilities. So, it may face various managerial deficiencies.

  • Unlimited liability:
    The liability of a sole trader is not limited to his invest capital.  It means in the case of loss of business the sole trader has to sell his/her personal property to pay a debt. Sole trading concern has liability which is not limited to the property of a business.

  • Loss in absence:
    It may come to close if the proprietor remains absent from his business due to his illness or other reasons. In the absence of proprietor,may lead to heavy losses. Employees may not be efficient or they may not take sincere interest. 

  • Uncertain life:
    The life of sole trading concern is closely connected with the life of the owner.  So, it can be terminated any time due to death. lunacy, insolvency or disability of the owner. The successors may not have the same degree of self-reliance and ability.

  • Limited scope of expansion:
    It has limited scope of expansion and development.  Due to the limited amount of capital and managerial skills, its activities cannot be diversified.

  • Limited scope of opportunity:
    Due to the limited scope of expansion and development of the business, its employees get limited opportunities for training, higher studies, attractive salaries and other benefits. 
0%
  • _______is easy to start and close.

    Joint Stock Company
    Partnership
    Joint Stock Company
    Sole Trading Concern
  • _____________plays the role of all i.e an owner,a manager,a controller,a risk bearer and a decision maker.

    Joint Stock Company
    Partnership
    Sole Trading Concern
    Public Enterprises
  • Sole Trading Concern is also called_________________.

    One-man business
    Individual Properietorship
    Sole proprietorship
    All
  • ____________are the characteristics of sole trading concern.

    Sole Management and Control
    All
    No profit sharing
    Single Ownership
  • Which one is the characteristics of sole trading concern?

    No profit sharing
    Unlimited liability
    Aggrement
    Sharing of profit/loss
  • ___________are the advantage of sole trading concern.

    All
    Quick decision
    Secrecy
    Easy to commence and dissolve
  • Which one is not a advantage of sole trading concern ?

    Secrecy
    Quick decision
    Transferability of shares
    Easy to commence and dissolve
  • Limited capital is the disavantages of _____________.

    All
    Joint Stock Company
    Sole Trading Concern
    Partnership Firm
  • _______are the disadvantages of Sole Trading Concern.

    All
    Uncertain life
    Limited capital
    Loss in absence
  • Which one is not a disadvantage of Sole Trading Conecern ?

    Limited capital
    Uncertain life
    Chances of misunderstanding
    Limited liability
  • A sole trading concern is to be registred under private firm Registration Act________.

    2014 B.S (1958 A.D)
    2015 B.S(2001 A.D)
    2022 B.S(1987 A.D)
    2016(1997 A.D)
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