Sole proprietorship is a form of business run by a single person and in which there is no distinction between the owner and the business. It is also called sole trading and who carries on business of sole trading is called sole trader. The main feature of such type of business is that the individual assumes full responsibility for all the risks connected with the conduct of the business.
Some of the main characteristics of such type of business are as follows:
- Single Ownership:
In Sole proprietorship only one person owns the whole business and the business is exclusively in the hand of that person. He invests or provides the entire capital either from his private resources or by borrowings.
- One-man management and control:
In Sole proprietorship ,the owner himself manages and makes all the business decisions. He formulates plans and control business according to his desire and capability.
- Unlimited Liability:
In Sole proprietorship there is the disadvantage of unlimited liability.He/She is personally liable for business debts. His/Her individual property can be used to pay liabilities.Hence,creditors are entitled to have claim even on his private property.
- No sharing of profit and loss:
The proprietor has the sole right on the profit of the business and if there is loss he has to suffer alone. The sole trader takes all the risks and, bears all losses and receives all profits which makes owner to work hard.
- No secrete entity:
In Sole proprietorship the proprietor and business are not separate entities legally. Loss in business is his loss and liabilities of the business are its liabilities. Hence, law makes no distinction between the proprietor and business. All the activities are done in the name of the owner. He has individual accountability.
- Limited Operations:
Sole proprietorship Concern has limited resources and managerial skills. It is confined to local areas. The operations are limited by capital, management skill and time of owner. Hence, it has generally a limited area of operations.
A sole trader can start any legal business according to his choice and means. He can start and close the business at any time without any formalities. He can easily expand, change or reduce his business. There is no restriction on it. However, he cannot start any business on which some legal restrictions are imposed.
It is very easy to maintain secrecy in sole trading. The owner himself makes all the decisions. He is not required to publish the accounts. He keeps all the business secrets to himself. Secrecy helps sole trader to face competition.
- Personal relation:
A sole trader has always direct relations with his customers. He is able to attend to every aspects and attention are established under this form of organization.eg. doctor’s clinic,retailer,etc.
- Lack of stability:
The life of sole trader business depends upon the life of the sole trader.Sole trading concern lacks stability.The business ends when the owner closes the business,dies or becomes insolvent.
- Few Legal Formalities:
Sole trading concern is subject to few legal formalities. It is easy to start. But it must obey the laws.It is subject to minimum government regulations .The legal formalities are very few in comparision to others.
Copyright : Shankar Mishra
Source: (Essentials Of Finance by KEC Publication)