Demerits of Sole Proprietorship
“The sole proprietors cannot afford much security, so they do not get much help from financial institutions. ”
The main shortcoming that a sole-proprietor has to face is the inadequacy of resources. Most of the time he makes investments from his family resources only. There is limit to which a single person can invest. He tries to raise finances from financial institutions also. These institutions want securities for these loans.The sole proprietors cannot afford much security, so they do not get much help from these financial institutions. The capacity for expanding business operations becomes limited for wants of resources.
The second demerit of sole proprietorship is that one man cannot be an expert (mostly) of each and every function. He is not able to devote sufficient time for all types of activities and has to depend upon paid employees.
The employees may not take such interest as the owner himself usually takes. The managing capacity of a proprietor is limited. In the present competitive world, complexities of managerial jobs are increasing everyday and this has further increased the problems of a sole-proprietor.
The sole proprietor may not be able to use the services of experts for want of resources. On the other hand, his limited profit also does not allow him to use the services of skilled professional people.
Even more, the liability of a sole proprietor is unlimited. His private property can also be assigned for meeting business losses. It has been seen many a time that a business continues as far so the sole proprietor is there. The successor may not have an aptitude or ability to continue the business in the same way.
A small concern cannot economize industrial purchase, manufacture and advertising. A large-scale enterprise is able to achieve good terms of purchasing and selling of goods. A sole proprietor is to take all decisions by himself so there is a possibility of wrong decisions. Lack of counseling may also create difficult situations.
So we see that a sole-proprietorship has many shortcomings when seen initially. But the fact of the matter is that most of these demerits can be overcome with the judiciousness and expertise of the proprietor. That is the reason why sole-proprietorship continues to be the most preferred form of business the world over.
Author - DeeKay
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