Sole trading concern is the simplest, oldest and in some respect, the most natural form of business organization in private sector. According to Professor Henry,” the individual proprietor is the form of business organization at the head of which stands an individual as one who is responsible, who directs its operations and who alone runs the risk of failure.”
In this form a single individual is solely responsible for providing the capital, for bearing the risk and for overall management and control of the enterprise. In is the one man show owned, managed and operated by one person.
Characteristics
Single ownership:
A sole proprietorship is wholly owned by one individual. The individual supplies the total capital from which his own wealth or from borrowed funds. He/she is one to invest, return and fulfill all the requirement of the business.
One man control:
The proprietor all alone takes all the decisions pertaining to the business. He is not required to consult anybody. Ownership and management are vested in a person. There is no specialization or consultant required. It is a small scale business and requires lesser dedication than I other forms.
No legal entity:
A sole proprietorship has no legal entity separate from its owner. The law makes no distinction between the proprietor and the business. The assets and liabilities of the business and its proprietor are not different. Any illegal activity related to business is directly related to owner and vice-versa.
Unlimited liability:
Proprietor is liable for all the debts of the business. In case the assets are insufficient to meet the debts, the personal property of the proprietor can be attached. There is no limited liability like in the case of Joint Stock Company.
No profit sharing:
The proprietor is all alone entitled for all the profits and the losses of the business. He bears the compete risk and there is nobody to share the risks, workload or any profit or losses.
Small size:
The scale of operation carried out by sole proprietor is generally small.
Merits
Easy to start and dissolve:
A sole proprietorship can be setup easily and quickly. No legal formalities and expenditures are involved in the establishment of a proprietorship. There is no need to associate others or to enter any agreement. Only a license may be needed in special cases. The owner can start business operations as and when he desires.
Similarly, a sole proprietorship can be closed down very easily and quickly.
Motivation to work:
The proprietor is all alone entitled for all the profits and the losses of the business. He bears the complete risk and there is nobody to share the risks, workload or any profit or losses. There is direct relationship with efforts and reward. There is an incentive to work hard. The proprietor is motivated to make the best possible use of his skills and resources to maximize the profits.
Quick decisions:
The sole proprietor is completely free to take all decisions and to implement the. He doesn’t need to consult or seek others approval. Quick decisions and prompt actions are helpful to improve the efficiency of business operations.
Independent control:
The proprietor alone takes all the decisions pertaining to the business. He is not required to consult anybody. Ownership and management are vested in a person. There is no governmental intervention in day to day activities.
Business secrets:
The sole proprietor can keep the secrets to himself and these secrets are not known to competitors or others.
Personal contact:
A sole proprietor is in a position to maintain intimate contacts with his customers and employees. He can enter to the requirements of each and every customer. Close personal touch increases the competitive strength of the business.
Flexibility:
A sole proprietorship is small in size and has a simple management functions. Therefore, it can be adapted easily to suit the changing conditions of the market. The line of business can be easily changed or modified.
Economy:
The management of sole proprietorship is inexpensive. As sole proprietor himself is the manager, the cost of management is very low. Borrowing capacity is high owing to the unlimited personal liability of the owner.
Social utility:
Sole proprietorship provides an opportunity for gainful self employment for the people with limited money. It offers a way of earning an honorable living for those who doesn’t want to work under other. It also facilitates equitable distribution of income and wealth.
Demerits
- Sole proprietorship has limited capital.
- Sole proprietor only uses his ideas and innovation capacity. So there is limited managerial ability.
- Sole proprietor must work more to earn more profit .higher profit generation is important. So, there is dull and monotonous wok.
- Death of sole proprietor causes death of sole proprietorship.
- There is no specialization in decision taking. So there can be chances of taking wrong decisions.
- There is low investment resulting in limited areas of operation.
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