Q. 5. What are the demerits (disadvantages) of Sole Trading concern?

Ans: Following are the demerits or disadvantages Sole Trading concern:

1) Limited capital: Capital of sole trader is limited for capital sole trader depends upon his savings and borrowings from friends and relatives. He may also take loan from bank However, there is limit on his savings and borrowings.
2) Limited managerial skills: Modern business is complex, complicated and competitive. It requires specialized and expert management. Due to limited capital, sole trader cannot appoint experts and meters to manage his business because they demand high salary. In practice sole trader himself manages his business. It is possible that he may not have the required managerial skills.
3) Limited expansion: Expansion means progress of business. Expansion of business depends upon capital and managerial skill. Due to limited capital and limited managerial skill, expansion of sole trading concern is limited. Sole trader cannot expand his business beyond local market.
4) Lack of specialization: Sole trading concern lacks specialization. In sole trading concern, the sole trader himself handles all business activities. One person cannot be expert in all business activities.
5) No Separate legal status: Sole trading concern does not enjoy separate legal status. As per law sole trading concern and sole trader are one and the same. They are not separate from each other. The organization and its owner are one and the same.
6) Lack of continuity: Sole trading concern does not enjoy long, stable and continuous life. Its continuity is affected by death, insolvency or insanity of sole trader. The hie oi sole trading concern depends upon life of sole trader.
7) Unlimited liability: The liability of sole trader is unlimited. When business liabilities are more than business assets then sole trader has to sell his personal property to pay business liabilities. This discourages a person to start business under sole trading concern.
8) Weak bargaining power: Bargaining power means buying or selling at the best possible price. It depends upon scale of buying and selling. When buying and selling are in large scale then bargaining power is strong and when buying and selling are on small heals then bargaining power is weak. Due to limited capital. limited storing Space, hunted risk bearing capacity, sole trader operates on small scale.
9)Wrong decisions: In sole trading concern all decisions are taken by sole trader himself. While taking decision he may not consult with others It is possible that his " decisions may go wrong Such prong decisions may bring loss to business.
10) Monotony and hard work: Sole trader works very hard from early morning to late night. Continuous Work affects his health badly. He does not get time for his personal and social life which results into monotony. One day he gets led up with the business and closes down his business.



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