Individual/Sole Proprietorship Organization

An individual proprietorship is a business organization with only one investor. The rights, responsibilities, and liabilities of that business also belong solely to that individual. In this business, the same person plays the role of owner, operator, controller, and capitalist.

Since only one person invests capital in this business, it cannot operate on a very large scale. Examples of individual proprietorship businesses include knitting sweaters, tailoring clothes, local shoe repair factories, local retail shops, furniture industries, spice, ice, industries.

Such organizations invest the capital they have, and if it is insufficient, they operate their business by taking loans or borrowing from banks and other individuals. They take the help of family members in operating the business and are also involved in the production work themselves. 

If the labor of themselves and their family members is insufficient to run the organization, other laborers can also be employed on wages.

In this type of business, the individual alone performs all the work related to planning, decision-making, and control of the business. 

The individual alone decides and controls all aspects such as where to operate the business, when to start, how much capital to invest, how many laborers to employ, how many family members and how many outsiders to hire, how much wages to pay, what kind of rewards to give for good work, what kind of punishment to give for bad work, how much raw material to use, where to get it from, how much to produce, where to sell or distribute, and how much to set the price.

The main characteristic of individual proprietorship is unlimited liability. Since the individual entrepreneur alone performs all the work related to planning, investment, decision-making, and control of the business, the liability of the individual entrepreneur is unlimited.

Whatever profit or loss occurs in this business must be borne by the individual alone. That is, if there is a profit, it does not have to be shared with anyone, and if there is a loss, it cannot be recovered from others.

Advantages of Individual Proprietorship:

The advantages of individual proprietorship are as follows:

1. Easy to establish and close: Establishing and closing an individual proprietorship does not require following a lengthy and cumbersome legal process. Such a business can be established and operated with a small amount of capital. Therefore, compared to other businesses, it is easy to establish and close an individual proprietorship.
2. Economical: Since the individual proprietor themselves performs all the work related to the operation, supervision, and control of the individual proprietorship, it is not necessary to hire many employees. This results in cost savings.
3. Quick decision-making: Since there is only one person in an individual proprietorship, they can make any decision quickly and independently.
4. Independent control: Since an individual proprietorship is completely under the control of a single person, they control all activities in their own way. There is no interference from the government or any other person in this.
5. Confidentiality: Confidentiality must be maintained in any work. In an individual proprietorship, since a single person makes all the decisions, such decisions remain confidential. The fact that they do not have to publish any of their activities, such as profit and loss, annual reports, etc., also keeps all matters related to the business confidential.
6. Close relationship with workers and consumers: Individual proprietorships are generally small in size, so the number of workers working in them and the number of consumers using the goods produced by them is small. Due to the small number, the proprietor discusses with all the workers to solve problems and understands their difficulties. Similarly, they win the hearts of consumers by producing goods according to their suggestions, desires, and needs. In this way, the proprietor has a cordial relationship with both workers and consumers.

Disadvantages of Individual Proprietorship:

The disadvantages of individual proprietorship are as follows:

1. Difficult to manage: Since all the work related to supervision, control, inspection, and monitoring has to be done alone in an individual proprietorship, it is difficult to manage all these things.
2. Lack of capital: Since only one person has to raise capital in an individual proprietorship, it can be difficult to raise the necessary capital if a large amount of capital is required for establishment and operation. Similarly, there may be a shortage of capital if the demand for goods suddenly increases and production needs to be increased.
3. Unlimited liability: The liability of an individual proprietorship is unlimited. If the business incurs losses for any reason or if the proprietor incurs debt, the entire burden falls on the single individual. They have to repay the debt even by selling their land or movable and immovable property.
4. Weak competitive ability: Since individual proprietorships are operated on a small scale with little capital, they cannot compete with large businesses. This can even lead to the failure of individual proprietorships.
5. Possibility of wrong decisions: All decisions in an individual proprietorship are made by a single person. The decision of a single person can sometimes be wrong. Wrong decisions can lead to the failure of the business.
6. Low profit: Since an individual proprietorship is established based on the capital, skills, efficiency, and thinking of only one person, goods are not produced on a large scale. Due to the small quantity of goods produced, the cost of production is high, resulting in low profits from the business.
7. Lack of continuity: Since an individual proprietorship is operated by only one person, the business may close down upon the death of that person. A business that was running based on the skills and efficiency of the initial operator may be difficult for others to run in their absence. Similarly, such a business may also close down due to the inability to obtain loan facilities when the business is in loss or facing operational difficulties.