Proprietary Firms

Only one person is the owner of the business who is called as the proprietor and the same person is the manager. All the profits earned by the business belong to the proprietor and he is liable for the losses and liabilities of the business.

Advantages:

1)      Proprietary firm is the easiest and most economical form of business organisation to form and operate. Not many of the government regulations are applicable to the proprietary firms.

2)      This type of organization is very suitable where size of the business is very small and the complexities involved in the business are comparatively less. However, if the size of the business increases or the complexities in the business operations grow, this form may prove to be insufficient.

Disadvantages:

1)      The proprietary firms exist due to the existence of the proprietor. If the proprietor ceases to be in existence, the firm ceases to be in existence.

2)      As only one person is owner and the manager, the capacity of the business to raise the funds and to cope up with the complex business operations is comparatively limited.

3)      Proprietary firm is always an unlimited liability organisation. In the sense, if the assets of the firm are insufficient to meets its liabilities, personal property of the proprietor is always at stake.

4)      The income of the proprietary firm is always clubbed with the individual income of the proprietor. As such, effective rate of income tax which the proprietor may be required to pay is likely to be higher.

5)      It is not possible to transfer the ownership of the business to somebody else without affecting the basic constitution of the business.