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Class : 11
Unit : Business

Explain the demerits of sole trading concern.

Ans : The demerits of sole trading concern are presented below: i) Limited capital:- A sole trading concern has limited capital. A sole proprietor cannot manage huge amount of capital due to lack of resources. With limited capital it is difficult to expand business to large scale. It is not possible to invest capital for research and development work. ii) Unlimited liabilities:- The sole trading concern is unlimited liabilities in nature . On the basis of scope of business, sole proprietor can borrow loan from banks or other financial institution. There is no any limitation for borrowing loan to sole trading concern. iii) Uncertain existence:- The existence of sole trading concern is uncertain. The well-being of sole trading concern depends on the condition of proprietor. So, the firm will be dissolved if the proprietor becomes insolvent, bankrupt, death, suffers from fatal disease etc. iv) Limited public relation:- Public relation is essential for business dealing. Sole trader keeps personal relation with all customers. He has to manage all functional areas of concern such as production, marketing, financial, human resources along with public relation. He cannot give more time for public relation work. So, his business dealing becomes limited to a few customers. v) Impractical decision:- The proprietor has to involve in all business activities Similarly he has to take decision alone and quickly without suggestions and discussion with others. Therefore, sometimes decision of proprietor becomes impractical and firm may suffer from business loss. vi) Difficult to obtain loan:- The capital investment in the sole trading concern is limited. It has no separate legal entity. Similarly, financial statement and other activities of the concern remain secret with the proprietor. So, it is difficult to obtain loan from bank and other financial institution for the expansion of the business. vii) Lack of specialization:- In modern competitive environment, specialization is essential for successful accomplishment of business objectives. viii) Limited opportunity for staff:- Sole trading is small concern having limited business scope. Therefore, staffs can get minimum opportunity. It cannot provide better remuneration, allowance, bonus, share of profit etc. to employees. So, experience and efficient employees do not want to work in sole trading concern.