Disadvantages of Sole Proprietorship
1. Limited/low Capital:
Disadvantages of Sole Proprietorship As financial resources of one man are generally limited there is always deficiency of capital in this form of organization. He cannot produce goods in large scale due to limited capital. Furthermore he cannot enjoy economy in any sector. When there is limited capital it means limited profit. But this problem does not rise in the joint stock company. Disadvantages of Sole Proprietorship
2.Unlimited Liability:
2. Sole trader has unlimited liability. In case of business loss, his personal property can be used to settle the debts of business. This is a great drawback of this form of business organization.
3. Lack of Experts:
Technical and administrative staff is necessary for the smooth and successful running of the business But the one man may not hire the services of qualified and experienced persons for indefinite period of time due to his limited sources. Therefore he cannot achieve the maximum benefit from its financial and capital
4 . Not Durable:
This type of business organization is very much temporary, because of
owner’s death, accident or heavy loss can stop its activities. The life of the business is linked with the owner. The business is not separate from the owner
5. Difficulty in Expansion:
It is not possible for one man to increase his business volume due to following factors, limited capital, limited managerial and technical abilities, and unlimited liabilities
6. Entire Loss:
In case of loss single person has to bear the entire loss of the business. This situation discourages the sole trader to put further efforts for the promotion of business.
7. Weak Bargaining Position:
The sole trader has weak bargaining position when he is a buyer or seller as compared to other big forms of business organizations.
8. Difficulty in Credit:
The banks and other financial institutions hesitate to advance loan to sole
trader due to non availability of proper securities and weak financial position.
9. Lack of Public Confidence:
The owner of the sole proprietorship does not publish his business accounts and there is no legal restriction to control. Therefore general Public shows less confidence on this type of business
10. Wrong Decisions:
A sole trader is doing all types of business decisions. A single person is not always in a position to understand all the affairs and problems of the business, so he may takes wrong decisions and suffer loss.
11. Difficulties to Face Crisis:
The sole trader has limited capacity to face heavy losses or economic crisis. In the time of heavy losses, business may come to an end.
12. Lack of Inspection:
In sole proprietorship there is no need of audit of accounts and inspection of goods. Some times a businessman is found in illegal activities like black marketing and smuggling.
Conclusion:
We concluded that this form of business Dfaho organization is most suitable because it is easily started with less capital. These businesses also provide useful services to people and have important part in contribution to economic development.
