Sole proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who bears all risks and receives all profits. This form of business is suited mainly in areas of personalized services and small scale activities due to shortage of capital and limited abilities of an individual who is the proprietor. Still many people continue to prefer sole proprietorship over other forms of organization as sole proprietorship offers many advantages such as:
(i) Prompt Decision Making The decision making is prompt under sole proprietorship as there is considerable degree of freedom in making business decisions and there is no need to consult others as in case of partnership or co-operative societies. This results in effective capitalization of market opportunities as and when they arise.
(ii) Confidentiality All the information related to business operations is kept confidential and secrecy is maintained as the sole decision making authority rests with the proprietor unlike partnership or cooperative form. A sole proprietor is also not bound legally to publish firm’s accounts as in case of a company.
(iii) Incentive to Work The sole proprietor receives all the business profits as a reward for bearing the business risk. He is the single owner and does not need to share profit. This provides an incentive to the sole proprietor to work hard.
(iv) Sense of Accomplishment There is a sense of personal satisfaction involved in working for oneself. It instills a sense of accomplishment and confidence in the individual as he/she is the one who from others which is present in all other forms of organization.
(v) Ease of Formation and Closure An important merit of sole proprietorship is the possibility of entering into business with minimal legal formalities. There is no separate law that governs sole proprietorship unlike other forms like co-operative societies or company. As sole proprietorship is the least regulated form of business, it is easy to start and close the business as per the wish of the owner.