Despite many advantages discussed earlier, the sole trading form of business is not free from criticism. It suffers from both social and economical disadvantages as stated below.
1. Unlimited liability:
This is the major drawback of a sole proprietorship. Personal property is attached with business property. In case of business assets are not sufficient to pay of the business liabilities; his personal property is to be utilized for the purpose of making payment to creditors.
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Any such situation in the business may result in bankruptcy or insolvency of the business along with the proprietor.
2. Limited financial resources:
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A sole proprietorship can provide only limited finance from his sources, howsoever rich he may be. There is also limit to his borrowing powers.
Because of unlimited liability clause everybody become reluctant of invest more and take any risk business to his credit, thereby minimizing profitability of the unit.
Further, the scale of business of a sole proprietor generally remains small. The business may not be expanded in respect of the available scope of doing so.
3. Uncertainty of duration:
Perpetual or continuous existence of ole proprietorship is always uncertain or unpredictable. It may abruptly come to an end with the death insolvency or physical disability (lunacy, imprisonment etc.) of the proprietor.
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It takes a long time to create the goodwill of the business but on the dissolution of the business, it can be lost immediately.
4. Limited managerial ability:
There is always limitation on the managerial ability of one person, howsoever competent he may be. He may be jack of all trades but master of none.
He cannot handle the various departments of the business with that much efficiency as the experts can. In case of big concerns, the various departments viz. Purchasing Marketing, Production, Financing, Advertising etc. are handled by professionals.
Captains of industry are born and not made. There are a few persons with outstanding managerial ability. A sole proprietor must keep his fingers on everything; he carries a staggering load of responsibilities which might crush him under its weight.
5. Restricted growth:
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A sole proprietorship concern cannot expand or grow beyond a particular level on account of limited capital and managerial ability.
The unlimited liability also is a hindrance in the expansion of business thus, the scope any opportunities is very less to take any ambitious growth and developmental programme for the future.
6. Unit of responsibility:
The sole-trader has to manage all the affairs of his business individually and there is not body to advise or help him. Since it is one man there is show and his decision is final and binding, whether it is good or bad, it may abruptly bring the business unit to an end.
The success or failure of a business unit is solely dependent upon the capacity and capability of the entrepreneur.
7. Limited opportunities of employees:
Since a sole proprietorship concern operates on a small scale, it cannot provide chances of promotion or advancement to the employees.
Further, employees cannot be given financial and non-financial benefits like that of big concerns. As such the services of experienced and qualified persons cannot be hired by a sole trader.
8. Monotony and hard work:
The lust of becoming rich overpowers him and compiles him to put in long hours of work. The sole trader usually knows nothing of forty-four hours. Warmth of social life and purposeful family are seldom seen in a sole trade.
9. Uncertain Future:
The management of a sole proprietorship may pass in to incompetent hands as the legal heir who inherits the business may lack discipline, spirit and managerial talents to continue with the same trade.
10. Unsuitable for large scale operation:
Sole trading business is lacking with required capital competent managerial ability, continuity in its existence besides the major factor of unlimited ability.
These factors poses serious threat in expending the capacity, or go for large scale operation. That is the reason for which small traders can not enjoy the benefit of economies of large scale.