It is virtually impossible to find a man in this world who has not limitations or weaknesses. One man control is ineffective and suffers from a number of limitations such as:
(a) Limited financial resources
(b) Unlimited liability
(c) Limited managerial capability
(d) Restricted growth
(e) Possibility of wrong decision
(f) Monotony and hard work.
Sole proprietor is a form of business organization in which sole trader introduces his own capital, uses his own skill and intelligence in the affairs of management of the enterprises.
He is also solely responsible for the outcome of the enterprise. It is the oldest and simplest form of organization and even today this form of business organization has gained enough significance.
He is regarded as the functional manager of all managerial functions. Sole proprietorship form of business is sometimes regarded as one man business because one person acts in different capacities.
These business houses are mostly carried on small scale basis. When expansion takes place, it is mostly undertaken out of profit. It becomes difficult to experience a state of expansion because of the following reasons:
- Limited financial resources in the hands of sole trader.
- Difficulties at the time of old age.
- Limited managerial skill and ability of old trader.
- Limited risk bearing capacity as there is no shifting of risks.
- The decision taken by sole traders. Sometimes becomes defective and faulty.
Though expansion of sole proprietorship cannot be undertaken indefinitely, the provision for expansion should be undertaken indefinitely, the provision for expansion should be undertaken on two bases like:
- Employment of a manager
- Taking a partner
The pros and cons of taking a paid servant or manager can be judged on the basis of the following considerations:
Taking a partner for expansion programme is desirable from financial consideration because the problem of finance is met by the partner.
Appointment of manager does not necessitate re-organization of ownership structure. However expansion problems are met by taking a partner because it will involve re-organization of organizational set up.
(c) Tax advantage:
From Income point of view, taking a manager is desirable because it will reduce burden of tax.
From the consideration of secrecy, a paid manager is desirable than taking a partner.
(e) State Rules and Regulations:
When a partner is taken for expansion programme, compliance of state rules and regulations are necessary.
(f) Business Risks:
Taking a partner is advantageous from the point of view of business risks because it will facilitate sharing of risks.