CBSE Class 11 » CBSE Class 11 Study Materials » Accounting » Advantages and Disadvantages of Sole Trading Concern

Advantages and Disadvantages of Sole Trading Concern


“A sole trading concern is a business that is controlled by a single individual who is accountable not just for the administration of the business but also for the risks associated with it.”

Because it is owned, controlled, overseen, and managed by a single individual, known as a sole trader, it is a straightforward and natural sort of organisation. The proprietor is free to engage in any business activity that is permissible under the laws of the land. Anyone with a tiny amount of funds, little expertise, and little intelligence can establish any legal business. The sole proprietorship, promoters, management, control, and risk-bearing of a business or individual entrepreneurship are all clearly defined in the preceding paragraphs: “sole trader.”

With the advancement of science and technology, the demands of business have increased as well, resulting in the development of new organisational structures. This type of organisation is also referred to as Sole Proprietorship, Individual Proprietorship, and Single Entrepreneurship, among other terms and phrases.

Features of Sole Trading Concern

(1) Single Ownership:  He is the only proprietor of the company. A business owner brings all of the capital, property, and assets necessary to start and run the business. As the name implies, this organization’s owner is known as Sole Trader.

(2) Individual Capital: In this case, the capital is provided by a single individual. This additional capital is raised by him through personal loans and borrowings from friends and family members. Because of the limited resources available to this organisation, the operation is done on a modest scale and inside the local trader market.

(3) Unification of Ownership and Management: A lone trader is the total master of his or her business, and he or she has complete authority over the affairs of the business in question. This gives him the freedom to make whatever decisions he sees fit in his firm. He is in complete charge of his company and has absolute authority over it. If there are any problems, he can take rapid remedial action to bring the situation under control and address the flaws in the firm. The use of family members for management is preferred over the use of strangers, as he believes that they are more trustworthy. In other words, ownership, management, and control are not distinct entities but are rather intertwined.

(4) Unlimited Liability: A sole trader and his business unit are treated as if they were one and the same entity. As a result, when there are losses in business operations, the lone proprietor should be able to cover them by selling his or her personal property. The liability of a sole proprietor is without limit. This indicates that he is individually liable for the repayment of all of the creditors’ debts. A sole trader and his business are inextricably linked, i.e. they are one and the same thing.

(5) Freedom from Government Regulation: In this sort of organisation, the government has only a limited amount of authority over the organisation. There are essentially no legal requirements to start or close a business; nevertheless, certain types of businesses, including restaurants, liquor stores, cigarette shops, and pharmacies (drugs), among others, require a licence. A person may engage in any type of business he or she chooses, with the exception of those that are against the law of the state. There is no separate act that applies to a sole proprietorship.

Advantages of Sole Trading Concern

(1)Easy and Quick Formation: Establishing a sole trading company is a straightforward process. A sole trading concern can be started by anyone who has the legal capacity to engage in an agreement. There are no legal requirements to follow. In other instances, he is the only one who must receive a licence. For example, operating a restaurant, trading in booze or tobacco, or dealing in medications are all examples of business ventures. Because the formation is simple and straightforward, it saves both time and money.

(2) Constant Personal Contact: In this organisation, it is quite simple to maintain the greatest possible number of personal relationships with consumers and employees. Customers’ preferences and dislikes may be catered to by a sole trader, and he can also foster positive relationships with his workers, which leads to customers being repeat customers and spreading the word about his business. Employees are likewise held to high standards of loyalty and honesty.

(3) Quick Decisions and Actions: As the sole proprietor of his or her business, the sole trader is responsible for all decisions and actions; there is no need to consult with anyone else. A speedy judgement is required for certain forms of business, such as speculative business. Because a single proprietorship is a one-person operation, there is no one to consult, give advice, or resolve issues. As a result, the choices made by the proprietor are final and are carried out as soon as possible.

(4) Adaptability: This refers to the ability to make quick and easy changes in the workplace. This type of business allows for complete adaptability. A single trader has the freedom to change the type, object, location, and other aspects of his or her business whenever he or she chooses. In part because this corporate organisation is not governed by any official legislation, and in part, because there are no government restrictions in place.

Disadvantages of Sole Trading Concern  

(1) Limited Capital: One of the most significant limitations to starting a business is the lack of readily available finance. The owner has just two options for raising capital: personal savings or borrowing money from friends, relatives, and financial organisations. It is always possible for one person to borrow more money than they have saved. A large scale business is therefore not conceivable in the case of a sole trader because his or her capital is constrained according to the nature of the business.

(2) Limited Managerial Capability: Because there is just one person in charge of running and controlling the business, a lone trading concern has limited managerial capability. If paid staff are hired, they will also work to the extent that their salary will allow them to do so in a productive manner. Because the employees are disinterested in the firm, it is difficult for the sole proprietor to effectively oversee all of the company’s operations. To put it another way, no one person is capable of having a complete understanding of all business activities. However, in the case of a sole proprietorship, all decisions pertaining to expansion, additional money, purchases, and sales are made by the proprietorship. Thus, the managerial abilities of this organisation are severely restricted.

(3) Doubtful Continuity: This type of organisation does not have a long-term sense of stability. Because of this, it is completely reliant on the life of its owner to continue being. In most cases, it comes to an end as a result of the death, insolvency, or insanity of the sole proprietor. As a result, a sole proprietorship is always a source of concern. There is a possibility that the sole trader’s family members will continue the business after his death, among other possibilities.

(4) Unlimited Liability:  This means that the lone trader is individually liable for any losses incurred in the course of his or her business activities. He needs to sell his personal property in order to cover the liability of the firm. The sole proprietor and his business are inextricably linked. As a result, a lone trader must conduct his or her business with the necessary care and prudence and must consider twice before embarking on a new or risky venture in the commercial world.


In a sole trade organisation, the decision-making authority rests with a single individual. He personally makes all of the investments, bears all of the risks, reaps all of the rewards, and oversees and controls the entire organisation. Sole traders rely on their own resources for the majority of their income, which means that their businesses are typical of modest size. The firm is typically run with the assistance of family members, but he may hire employees to handle the day-to-day operations of the company. It is impossible for him to be held liable under any circumstances.

The single trader, on the other hand, must be a legal entity with the legal capacity to engage in a contract. In addition, the business that will be operated should be permitted by law. In some cases, it may be necessary for a person to obtain a business licence from the appropriate authorities before beginning operations. These requirements should be performed in advance of the meeting. In most cases, no extra-legal formality is required for the establishment of a sole-trader firm, as opposed to the establishment of a corporation or a cooperative.


Frequently asked questions

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