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Sole Proprietorship

ArticleID 63  
Writer Grace Odinga
Category Personal Article

There are many legal forms of businesses that an entrepreneur may undertake and one of them is sole proprietorship. In a sole proprietorship, one person owns the entire business, provides all the capital and assumes all responsibility.

This is the simplest form of a business organization. A sole trader or a sole proprietor owns the business alone. He provides all the necessary capital and other resources alone. He engages in business on his own ac¬count. The business has no existence apart from the owner. It is, therefore, not incor¬porated into a legal entity but a trading license is required. The law does not recognize a sole trader as a separate entity from his business. Many businesses in Kenya are of this type and include kiosks, general shops and restaurants.

A sole trader is entitled to all the profit and is also responsible for all the losses. This means that the liabilities of the business are the personal liabilities of the sole proprietor as long as he is the owner of the business. This also implies that should the business suffer losses to an extent that the business assets are not enough to pay the debts, the sole trader will be required to pay the debts from his private sources. ADVANTAGES AND DISADVANTAGES OF A SOLE PROPRIETORSHIP


(i) Low start-up costs: It is easy to start a one-person business because there are few legal intricacies. Compared to other forms of business organizations, sole proprietorships are easier and simpler to start and to wind up.

(ii) Direct control and decision-making by the owner: The sole trader takes all decisions alone. This means that decisions are made time¬ly and quickly. Implementation of deci-sions is also fast because very few people are involved.

(iii) All profits go to the owner. The sole trader enjoys all the profit from his business and this may encourage him to work harder. He will also be more careful to avoid any losses because he knows that he will suffer the losses alone – even from his private sources.

(iv) Networking: Sole traders are in a better position to establish direct contacts both with their customers and employees. Such contacts are more likely to lead to better understanding of employee and customer needs and result in provision of better ser¬vices. Better services will mean greater success for the business.

(v) Secrecy: The sole trader is in a better position to keep his business secrets than any other form of business ownership.


(i) Unlimited liability for the owner. The sole trader is personally liable for all the debts of the business. If the assets of the business are not enough to pay the: liabilities, personal property can be attached by the creditors. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.

(ii) Difficulties in raising capital for startup or future expansion. Sole traders are often unable to raise suf¬ficient capital funds.. They have to rely on their own ability to raise money to finance their own businesses. This is not always easy. The business will, therefore, be restricted by lack of capital.

(iii) Unstable business life. If the owner becomes ill or goes on holiday the business may suffer. This can be less of a problem if the trader employs a manager or managers. How often the trader is prepared to leave the manager in charge will depend upon how much they trust them.

(iv) Long working hours: Many sole traders work very long hours, as they may be the only ones who work for the business.

(v) Lack of continuity: Sole proprietorships suffer from lack of continuity because the life of the business is usually limited to the life-span of the owner. This means that the business is likely to close down if the owner becomes bankrupt, dies, is unable to run the business or is imprisoned. However, some businesses may continue if the next of kin are also business minded.

Entrepreneurship, Sole Properietorship
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