What are the various advantages of proprietary firm?
Sole Proprietorship is the simplest for of Business Organisation as compared to other forms, namely, Partnership, Company, etc. It has many benefits and some disadvantages to.
First, let me throw some light on the benefits of forming a proprietorship business:-
1. Easy Incorporation/Formation- Starting a sole proprietorship is much less complicated than starting a formal corporation, and also much cheaper. Some states allow sole proprietorships to be formed without the double taxation standards applicable to most corporations.
2. Tax Benefits- The owner of a sole proprietorship is not required to file a separate business tax report. Instead, they will list business information and figures within their individual tax return. This can save additional costs on accounting and tax filing. The business will be taxed at the rates applied to personal income, not corporate tax rates.
3. Employment- Sole proprietorships can hire employees. This can lead to many of the benefits associated with job creation, such as tax breaks.
4. Decision Making- Control over all business decisions remains in the hands of the owner. The owner can also fully transfer the sole proprietorship at any time as they deem necessary.
Now some of the disadvantages the yo should be aware of:-
1. Liability- The business owner will be held directly responsible for any losses, debts, or violations coming from the business. This is drastically different from corporations, wherein the members enjoy limited liability (i.e., they cannot be held liable for losses or violations).
2. Taxes- While there are many tax benefits to sole proprietorships, a main drawback is that the owner must pay self-employment taxes. Also, some tax benefits may not be deductible, such as health insurance premiums for employees.
3. Lack of “Continuity”- The business does not continue if the owner becomes deceased or incapacitated, since they are treated as one and the same. Upon the owner’s death, the business is liquidated and becomes part of the owner’s personal estate, to be distributed to beneficiaries. This can result in heavy tax consequences on beneficiaries due to inheritance taxes and estate taxes.
4. Difficulty in Raising Capital- Since the initial funds are usually provided by the owner, it can be difficult to generate capital. Sole proprietorships do not issue stocks or other money-generating investments like corporations do.
So, while sole proprietorships do not necessarily create more liabilities, they do expose the business owner to a risk of being sued. Lawsuits can be filed against the business owner for legal violations, as well as to collect any outstanding debts.
- Easy Formation: Proprietary firm is easiest and economic form to create and operate as it can be started by any person without any legal formalities. Also there is no set limit of minimum or maximum number of persons to start the business as it can be started by a single person.
2. Better Control : As the owner is the single person so he has full control over his business. His total authority over his business gives him the power to plan, organize, co-ordinate the various activities. The sizes of such firm are generally small which also makes it better to control.
3. Quick Decision Making : Being the only owner of the business the sole trader takes all the decisions himself. He evaluates all the opportunities available and finds the solution to problems which makes decision making quick.
4. Flexibility in Operations : One man ownership makes it possible to bring flexibility in the operations of the business.
5. Personal attention to customer needs : Due to the small geographical area it becomes easy for the sole proprietor deal with all its customers personally and knows their needs. Thus it makes easy for him to pay special attention to consumer needs.
6. Creation of Employment : Proprietor firm facilitates self employment and also employment for many others. It promotes entrepreneurial skill among the individuals.
7. Equal Distribution of Wealth : Proprietary firm is generally a small scale business. Hence there are many opportunities for individuals to start their own business enabling widespread dispersion of economic wealth.
8.No Legal Formalities required : A proprietary firm is not required to comply with all the legal and procedural formality.