DISADVANTAGES OF SOLE PROPRIETORSHIP

The disadvantages of sole proprietorship can be narrated as under:

1.  Continuity

The continuity of sole proprietorship depends upon the health and life of the owner.  In case
of death of the owner the business no longer continues.

2.   Chances of Fraud 

In sole proprietorship, proper records are not maintained.  This increases the chances of
errors and frauds for dishonest workers.

3.  Expansion Difficulty

In sole proprietorship, it is very difficult to expand the business because of the limited life of
proprietor and limited capital.

4.  Lack of Advertisement

As the sources of single person are limited so he cannot bear the expense of advertisement,
which is also a major disadvantage.

5.  Lack of Capital

Generally, one‐man resources are limited, so due to financial problems he cannot expand
his business.

6.  Lack of Inspection and Audit

In sole proprietorship there is lack of inspection and audit, which increases the chances of
fraud and illegal operations.

7.  Lack of Innovation

Due to fear of suffering from loss, a sole proprietor does not use new methods of
production.  So, there is no invention or innovation.

8.  Lack of Public Confidence

The public shows less confidence in this type of business organization because there is no
legal registration to control and wind up the business.

9.  Lack of Skilled Persons

One person cannot hire the ser4vices of qualified and skilled persons because he has limited
resources.  It is also a great disadvantage.

10.  Management Difficulty 

One person cannot perform all types of duties effectively.  If he is a good accountant, he
may not be a good administrator.  Due to this, business suffers a loss.

11.  Much Strain on Health

In this type of business organization there is much strain on the health of the businessman
because he alone handles all sorts of activities.

12.  Not Durable

This type of business organization is not durable because its existence depends upon the life
of sole proprietor.

13.  Permanent Existence

In this type of business there is a need of permanent existence of a businessman.  In case of
absence from business for few days may become the cause of loss.

14.  Risk of Careless Drawings

In sole proprietorship owner himself is a boss.  There is no question to his decisions or
actions.  So, there is a risk of careless drawings by him.

15.  Risk of Loss

In case of sole proprietorship a single person bears all the losses, whereas in the case of
partnership or Joint Stock Company all the partners or members bear the loss.

16.  Unlimited Liability 

In sole proprietorship there is unlimited liability.  It means, in case of loss personal property
of the owner can be sold to satisfy the claimants.  It is a great disadvantage.

CONCLUSION

From  the  above‐mentioned  detail,  we  come  to  the  point  that  despite  the  above disadvantages, sole proprietorship is an important form of business organization.  This is due to the fact that its formation is very easy and due to unlimited liability the owner takes great care and interest in the business, because in case of loss, he is personally responsible.  As he enjoys entire profit, this factor also encourages him to work with great efficiency which promotes his business.