Demerits, disadvantages of sole trading concern

Form of business organisation

Oc-3

Q- Disadvantages of Sole trading concern.

Answer:-

• Introduction:-It is that concern which is owner, manager, controlled and invested by a single person. Hence, it is called sole proprietorship or individual by a single person. Hence, it is also proprietorship or individual proprietorship.

• Meaning:- sole means single and proprietor means seller therefore,sole trading concern refers to private form of organization owned and manage by an single seller.

• Definition:-  According to prof. James L. Lundy 

"The sole proprietorship is an informal type of business owned by one person "

1. Limited capital:
The resources of a sole proprietor are limited. He depends only on his personal resources and his borrowing capacity. The borrowing capacity depends on his assets and credit worthiness. It is obvious that financial resources of a single person will be insufficient for business expansion. Limitation of finance is a major handicap for sole-trader business. Therefore, the size of the firm remains small.

2. Limited Managerial Abilit:
The managerial ability of a soletrader is limited because a person may not be an expert in each and every field of business such as purchasing, selling, accounting etc. The sole proprietor may not be able to use the service of experts for want of resources. The limited managerial capacity may hinder the growth of the business.

3. Unlimited Liability:
The unlimited liability of a sole proprietor may affect his enthusiasm and restrict introducing novel ideas in business.

4. Short Life:
Anything which affects the personal life of a soletrader affects his business also. Prolonged illness or death of the soletrader brings the affairs of his business to a stand- still. If his children are interested and efficient to run the business, the sole trader business can be continued. Otherwise it will be closed. The closure of a business will cause inconvenience to the consumers and may also result in social loss.

5. Hasty Decisions:
Decisions arrived at, after deep deliberations and discussions are sure to be better than that of a decision taken by one man. It is rightly said two heads are always better than one. The chances of wrong decision-making are quite high in a sole trader business.This is because of the fact that the sole trader takes all decision of the business himself without any assistance. This may lead to wrong decisions. The hasty decisions may result in loss and affect the sole trader.

6. Lack of Specialisation:
The sole trader has to undertake all the work relating to business himself such as buying, selling, accounting, financing, advertising etc. He is a jack of all trades but master of none. It would be difficult to avail the services of experts in his business because of small resources. So, the benefits of division of labour cannot be reaped and specailisation cannot be achieved in this type of business
.
7. Uneconomic Size:
Because of limited capital and skill, the sole traders have to work on a small scale basis. Thus he is deprived of economies of large scale operation.

8. Lack of Consultation:
He has no one else to consult before taking any important. decisions except his family members. This may result in heavy loss if his decisions go wrong. 

9. Uncertainty:
The life of the sole trader business is uncertain and unstable. The life of business depends upon the changes in taste and preferences of customers and changes in fashion, and technology. If soletrader fails to cope up with the latest development he will land in trouble.

Note- 1) 6 point for 5 marks.

              2)10 point for 10 marks.

              3)for long answer definition is                           compulsory.

              4) Right diagrams if any.

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