18. Disadvantages of individual proprietorship.— The disadvantages of sole proprietorship are obvious. Usually the proprietor substitutes his own excellent mental qualities for the organization necessary to cor porate enterprises. The life of the individual then becomes the most important factor in the business. When it is lost, the business usually fades away, or it is incorporated, and its functions are divided and are intrusted to several different persons. The dis tribution of various functions in business among dif ferent individuals creates an organization that out lives any component part. While it may be difficult to find a good sales manager, for example, it is almost impossible to find a person who combines all the quali ties required by the producing, marketing and financ ing functions of a growing enterprise.
While a proprietor may employ highly paid ex perts to advise him, it is questionable if such a pro cedure is as effective as a system made up of several able persons, all equally interested in the success of a common undertaking. They can sharpen each other's wits without fear or favor. Indeed this weak ness of the individual proprietorship often induces men to conduct their business under a so-called trade name. They feel thereby that they gain standing in the community and thus they are able to improve their credit. Usually, to use a trade name, the proprietor is required by law to file a certificate in a public office in order that those dealing with the business may know the responsible person. And, when such a person sues or is sued, his own name and not the name of his busi ness is used. If he takes title to land he should take it in his own name. The state permits the use of a, business name but does not recognize the business as entirely distinct from the person owning it.
19. Individual credit is limited.—Except in the ease of spendthrift trusts, there is no means known to the law which enables the individual to escape liabilitv for his debts, however incurred. His eggs are all in one basket. If his business is small, this unlimited
liability will be an advantage in getting credit. His creditors will appreciate his willingness to assume all the risks; he thereby shows his faith in his business. Therefore, if a small business is incorporated, credi tors are likely to demand that the responsible indi vidual get from behind the corporate shield of limited liability and assume liability by guaranteeing pay ment.
On the other hand, in large businesses, this very un limited liability prevents the individual from aggre gating large sums of capital. If a person has a suc cessful patent and needs capital to develop it, the chances that this undertaking will be ruined by some other and less fortunate venture of the owner, are sufficient to deter investors from intrusting their capi tal to him. Of course, the patentee would incorporate a company to tak-e over the patent.
20. Where individual proprietorship is best The United States census shows the average value of products per establishment in 1914 was $258,174 in the case of those operated by corporations ; $38,835, in the case of those operated largely by firms, and only $13,518 in the case of those operated by individuals. The small concerns are the natural pastures for the individual. And the single entrepreneur seems to thrive best in occupations requiring exceptional skill, and in those where machinery cannot be used to good advantage. Thus farms, except the large ranches and plantations, are usually owned and run by individuals.
In individual proprietorship all the control, all the risk-, and all the income are centered in one person. The amount that can be borrowed by the individual is negligible as compared with the large funded in debtedness of corporations. Evidently this form of organization, with the advantages and disadvantages outlined, is, and will remain, the business form of or ganization of small pioneer enterprises, and of those enterprises depending chiefly on skill rather than on aggregation of capital.