16 most essential advantages of Sole Proprietorship

Advantages of Sole Proprietorship

1. Easy to form:

The outstanding advantage of sole proprietorship is that it can be formed very easily and quickly. No legal complications are involved except that a license has to be taken from the local authority.

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The simple decision of a person to start enterprise gives rise to a sole proprietorship since no time, money and energy is wasted in the commencement of an enterprise.

  • Easy to form
  • Secrecy of business
  • Flexibility in operation
  • Quick decisions
  • Sole profit there
  • Free from legal restrictions
  • Effective management and control
  • Personal relations with customers
  • Good industrial relations
  • Reduction in cost of production
  • Way of life
  • Development of personal qualities
  • Inherited goodwill
  • Tax advantage
  • National importance
  • Ease to dissolution

2. Secrecy of business:


Absolute secrecy can be maintained by the sole proprietor, Secrecy is not practicable in other form of organization. The success of an enterprise in a competitive world mainly depends upon the capacity of the entrepreneur to keep his trade affairs as far as possible secrets from his competitors.

Moreover, a sole proprietor is not required to disclose his profits or financial position to the members of the public.

3. Flexibility in operation:

A sole proprietor can take full advantage of entrepreneurial opportunities. He can change the course or line of the business at any time as may be required by a particular situation.

A sole trading concern is thus more flexible as compared to others forms of organization and is best suited to the enterprise where demand.


Thus, there is a great deal of flexibilities fluctuates frequently in plans, policy making, taking decision and taking up any activities.

4. Quick decision:

Solo proprietorship is the only concern where the owner is supreme judge of his business. He can avail of business opportunities as and when they arise.

Moreover, time lag between decision making and its implementation is so short that immediate results of his decision can be seen by the proprietor.

5. Sole profit thxer:

The whole profit of the enterprise belongs to the proprietor. The urge to earn still more stimulates him to work hard and devote his entire soul and heart to make his business unit a grand success.

Thus, there is direct relationship between effort and reward. Any form of failure or incurring loss has to be solely born by him.

6. Free from legal restriction:

There are few legal restriction on the formation of a sole proprietorship. There is no special Act which governs sole proprietorship.

Even registration is not mandatory unless you want to avail same benefits. A partnership firm is governed by the Partnership Act and a company is governed by the Companies Act.

7. Effective management and control:

In sole proprietorship the proprietor is motivated to put in his best of ability and capacity in the management of the enterprise. The proprietor has leads in effective management and control.

The proprietor has sole right of control over the enterprise. He can direct and guide the affairs of his business the way he likes.

8. Personal relations with customers:

As the size of enterprise is usually small, a sole proprietor is in a position to maintain and develop personal relations with his customers.

Individual attention to customers enhances the reputation and goodwill of the business and ultimately leads to increased sales and profits.

9. Good Industrial relations:

The number of employees in case of a sole proprietorship is usually small as much the entrepreneur is personally in touch with all his employees.

Both the employees and the employer can understand difficulties and problems of each other. This helps in smooth running of the enterprise.

10. Reduction in cost of production:

Due to less managerial and administrative expenses a sole trading unit expensive as compare to others forms of organization.

This leads to reduction of costs of production as some portion of such benefit is soles on the customers. Due to less unit cost of demand and profit also subsequenting increased benefiting the unit.

11. Way of life:

Sole proprietorship provides an excellent opportunity to those persons who wise to give employment to others rather than serving with others.

Persons with small means can satisfy their desire to create something new or worthwhile by starting a sole trading concern even though it may be risky.

12. Development of personal qualities:

This form of organization develops a number of personal qualities in the proprietor like risk-taking, initiative, self-reliance, managerial talents, sells and marketing skills etc.

13. Inherited goodwill:

The ownership of a business of sole proprietorship passes from father trod sons. In other words, the goodwill of the enterprise passes from one generation to the other. It need not establish its own name and fame again to deal with different parties.

14. Tax advantages:

Tax liability of a sole trader is very less as compared to a company. He is required to pay tax as an individual and not as a business unit. Thus, there is no difference between in individual income and business income.

If the unit is coming under jurisdiction of SSI, cottage industry or KVIC, then entire amount of profit is free from tax. A company has to pay tax at a higher rate.

15. National importance:

The scale of enterprise of a sole trader generally remains small on account of limited capital and managerial ability. This leads to decentralization of business units and provide concentration of economic powers in a few hands.

16. Ease of dissolution:

The closing down of the enterprise depends entirely upon the decision of the proprietor to dissolve the unit. No legal formalities are involved in the dissolution of the business. The proprietor is not required to justify his decision after the dissolution of enterprise.

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