Sole Proprietorship:

The simplest and oldest form of business organization. It is a business owned and operated by one person. This single owner takes all the business risks and all the profits. He is also the manager of the business. A large part of Kenyan businesses is of this form, however they do not account for the larger amount of business activity. Examples are hardware, matatu, bus, kiosks, shoe shops, shop keeping, hairdressing, beauty shops, etc. The business has few employees usually four or less.

Advantages of Sole Proprietorship:

(a) Ease of starting:

A sole proprietorship is easy to start since there is no need to make a contract with others. There are  few legal requirements except a licence from the government. The owner is free to choose the name of the business without much consultation.

(b) Low cost of organization:

The licence fee is small. One only needs money for equipment and merchandise. The profits of the business are not taxed. The owners pay tax as an individuals.

(c) Freedom to manage:

The owner has maximum freedom in decision making as he is the boss and is the only one involved. He can also adjust quickly and take advantage of any business opportunities that may occur.

(d) Profit incentive:

After all expenses are paid, all the profits belong to the owner and this serves as a strong incentive and gives the owner maximum satisfaction and encouragement to improve on his business.

Weaknesses of sole proprietorship:

(a) Limited size:

The size of sole proprietorship is limited by the amount of capital the owner can raise, the sum of money already on hand plus what he can borrow. As the amount of capital needed increases, the owner may find it necessary to change to a partnership or even corporation.

(b) Unlimited liability of debts:

The claims of creditors against a business may exceed the value of its assets. In this case the personal property of the proprietor may be taken to pay business debts—this often discourages people from starting their own businesses.

(c) Limited life:

The business may and usually dies if the owner dies or becomes disabled especially when family members do not want to take over. Sometimes family members may take over but are unable to run it well and bankruptcy results. A sole proprietorship has no legal life beyond that of its founder.

(d) Limited management ability:

Every business has many basic functions that must be performed in order for it to be successful.Depending on the type of the business these may include buying, selling, advertising, accounting and bookkeeping, insurance, credit personnel management. The fact that few people are expert in all these areas is the chief cause of most small business failures, yet the sole owner is responsible for  carrying out even those functions for which he or she has no real competence.