After reading this article you will learn about the limitations of sole proprietorship with measures to overcome it.
Limitations of Sole Proprietorship:
When the business of a sole trader continues to expand, he has to face the following limitations:
1. Lack of Capital:
As the sole proprietor has got a limited capital which he has already invested in the business, he is not in a position to arrange for amount of future capital required. The capital already invested is floating in the shape of machinery, raw material purchased, finished goods in stock. He is also not in a position to raise capital from the market because his credit capacity cannot be expected to be so sound.
2. Limited Managerial Ability:
Notwithstanding the fact that he is the sole proprietor-cum-manager and has conducted his business successfully, he has no experience of the management of a vast business. It is not difficult to control and manage a business of a very small size because personal contacts can be established with the employees, sellers and customers but when the business is in the stage of expansion many problems regarding the purchase of machinery, purchase of raw material, manufacture of goods, storing of goods, finding of suitable markets and requiring of skilled and unskilled workers are bound to arise.
Above all is the problem of raising finance to cope up with the expansion cost of business.
How to Overcome the Problem?
The only way to overcome the basic problems discussed above is to go in for partnership organisation. It is the simplest method to expand the size of business. The organisation is an association of individuals competent to contract who agree to carry on a lawful business in common with the object of sharing profit in a partnership. If he agrees to do so then his problems of finance, managerial as well as purchase of raw material and sale of finished goods etc. would be solved.
If the sole proprietor is not inclined to go in for partnership then he should go in for a Joint Hindu Family system. By going in for Joint Hindu Family system, he will be able to overcome finance problem and he will have some trusted members of the family to help him to control the business.