Sole Proprietorship Business Structure – Why It Is Usually The Starting Point

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What is sole proprietorship business? How is a sole trader's business structured? Learn the features, sources of capital, advantages and Disadvantages here.

It is no news that sole proprietorship business forms a huge part of every Nation’s economy, and it is usually the starting point because of its nature.

For example, in West African Countries, Sole proprietorship businesses and other forms or businesses contribute to the total output.

If these small businesses are so important, help in facilitating the flow of goods and services in the country, then we should know more.

Sole proprietorship business structure

Are you running a small business all by yourself and making some profit? Are you thinking of starting a business that you can own and manage all alone?

Then, you’re in for a sole trader business or sole proprietorship business.

What Is Sole Proprietorship Business?

A Sole proprietorship business is a kind of business or form of business enterprise, owned, financed, and managed by one person, with the primary aim of making a profit.

It is one of the common forms of business organizations and the oldest. No doubt, sole proprietor or sole trader business is common all over Nigeria, just like in other countries of the world.

Unlike joint stock companies and private limited liability companies, a sole proprietorship business is an unincorporated business unit.

Examples of sole proprietorship ventures are found in primary industries like farming, fishing, etc. In secondary industries, sole traders include printing business, small scale manufacturing, independent contractors, etc.

In tertiary industries which involve the provision of commercial and professional services, sole proprietors include tailors, hairstylists, barbers, welders, etc.

Features of a Sole Proprietorship

features of sole proprietorship business in Nigeria

Let’s talk about features of a sole proprietorship enterprise.

  • Ownership: Unlike a partnership business, the sole proprietorship business is owned by one person who is often called a sole trader.
  • Objective: The major objective of a sole-trader or one man business is to make profit.
  • Source of capital: Capital is provided by the sole proprietor.
  • Liability: The owner of the business has unlimited liability. This means the owner is fully responsible for all the business debts.
  • Legal Status: A sole proprietorship business is not a legal entity. It is not incorporated and not separate from its owner.
  • Management: A one-man business is managed by the owner of the business.
  • Lifespan: Unlike other forms of business, the death of a sole trader means the end of the business. This means the business can fold up anytime.

What are the Sources of Capital For A Sole Proprietor?

Obviously, to start a business you need capital, isn’t it? Here are sources of capital for a sole proprietorship business.

  • Personal Savings: This is usually the first place to look. Not just sole traders, every type of business will definitely look into personal savings to start a business.
  • Loans from family and friends: That’s what I’ll call social capital. Sole proprietors get financial assistance to start their businesses.
  • Loans and overdrafts from banks: Sole traders also get capital from banks in form of loan or overdrafts.
  • Grants and loans from the government: For example, the Bank of industry loan is there to help businesses in Nigeria. Grants can also be obtained when provided by the Small and Medium Enterprises Development Agency of Nigeria SMEDAN.
  • Trade credit from suppliers: Sole proprietors can get goods from suppliers, wholesalers, and producers on credit.
  • Other sources: Some very low demanding capital businesses can look into online mobile loan apps in Nigeria to get funds to start their business.

Advantages of Sole Proprietorship

small business owner - sole proprietorship advantages now

The following are sole proprietorship advantages:

  1. Ease of Set up: A sole trader business is so easy to establish. It doesn’t require a huge list of protocols or procedures to establish.
  2. Capital Requirement: Very little capital is required to set up the business. Even the sources of capital make it easy.
  3. Management & Decision Making: A sole proprietorship business is owned and managed by the sole owner. Hence decision making is quick and without necessarily seeking the advice of other workers and it’s easy to manage.
  4. Flexibility: Sole proprietorship business can thrive in all business environment, be it rural or urban areas. This is because of its simplicity.
  5. All profits derived from the business belongs to the owner of the business alone.
  6. Privacy: One of the advantages of a sole proprietorship business is privacy. The owner can keep matters of his business secret and is not obliged to publish his account statements or audit to the Registrars of companies.
  7. Tax Advantage: A sole proprietor enjoys tax advantage as he pays less tax. Learn more about taxation in Nigeria.
  8. Small Operation: Sole proprietorship serves small markets and as such, meeting the needs of the local market will be efficient.
  9. He pays attention to every activities in the business and has clear knowlede of every aspect of the business.
  10. He enjoys close relationship with workers in the business, customers and also, suppliers.

Disadvantages of Sole Proprietorship Businesses

Disadvantages of sole proprietorship business structure in nigeria

The following are the downsides of a sole proprietorship business:

  1. Continuity problems: There’s a difference between building a business and building a startup. A sole proprietorship may end anytime when the owner dies. Also, when he’s away (either sick or on holidays), the business is temporarily down.
  2. He suffers from very limited capital and most times, it is difficult to secure loans from commercial banks in Nigeria.
  3. Unlimited liability: In the event of business failure, his assets and properties can be sold to pay creditors.
  4. He lacks specialization: Most sole traders are jacks of all trades, they are involved in every aspect of the business.
  5. Limitation in Expansion: The business finds it difficult to expand as a result of the small nature of the business and limited capital.
  6. A sole trader bears all the risks of the business alone.
  7. The business cannot sue or be sue in its own rights. It is not a legal entity

Also Read: Top 50 Nigerian oil and gas companies and their addresses

Sole Proprietorship Business (Summary)

There you have the structure of a sole proprietorship business in Nigeria and almost everywhere in the world.

The continued existence of sole traders business units are as a result of the small capital requirement, low overhead costs, ease of setup, customer loyalty, etc.

What do you think about running a one-man business? Let’s have your opinion in the comment box below.

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