Limitations of Sole Proprietorship: 1. Limitations of management: The proprietor has certain limitations, for example, he/she must rely upon his/her own skills and judgement in managing the business. Few proprietors have all of the management skills required for financing, marketing, purchasing, supervising personnel, and related functions. Not only does this limit the size of the business, but it also contributes to the relatively high rate of failure among sole proprietorships. 2. Unlimited liability: Since the owner takes all the profits, he must also accept full personal responsibility for all the losses, even to the extent of his personal possessions. Because in the eyes of law, the firm (sole proprietorship business) and sole proprietor are one and the same and not two different entities, and therefore, the liabilities of the business are the personal liabilities of the proprietor. 3. Lack of continuity: An enterprise that depends on one man comes to a close if that man becomes seriously ill or dies. Such a situation, arising out of lack of continuity, proves disastrous for employees and all those persons and institutions who had business relations with such a business. 4. Limitations of size: Since a sole proprietary business is conducted on a small scale, it poses- certain problems, especially in raising sufficient financial resources to support expansion, modernization, and diversification plans of business, and also providing meaningful opportunities and welfare.Merits of Sole Proprietorship: 1. Ease of formation and dissolution: The sole proprietorship is the simplest form of business ownership. There is hardly any formality involved in setting up this type of organization. This ownership organization is not governed by any special Act. However, general laws like Law of Contracts, Sale of Goods Act, etc., are applicable. Dissolution, or sale of business, is equally convenient in most cases. Satisfaction of creditors’ claims is usually the only restriction in winding up the business.