Sole Proprietorship
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‘Sole’ means single and ‘proprietorship’ means ownership. It means only one person or An individual becomes the owner of the business. Thus, the business organisation in Which a single person owns, manages and controls all the activities of the business is Known as Sole Proprietorship form of business organisation.
That there is only one owner. A sole trader is an independent owner of a business. The proprietor has all the rights and responsibilities of the business and any profit or loss made.
In this form of business, an individual invests his own capital, uses his own skill and undertakes the business activities. He manages affairs of the business, enjoys profits and bears losses on his own.
This form of commercial organisation is also known as proprietorship, the sole trader, individual entrepreneurship, Proprietorship concern or sole trading concern.
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Features
One man’s Capital
The capital required by a sole proprietorship form of business organisation is totally arranged by the sole proprietor. He provides it either from his personal resources or by borrowing from friends, relatives, banks or other financial institutions.
One-man Control
The controlling power in a sole proprietorship business always remains with the owner. The owner or proprietor alone takes all the decisions to run the business. Of course, he is free to consult anybody as per his liking.
Less Legal Formalities
The formation and operation of a sole proprietorship form of a business organisation require almost no legal formalities. It also does not require to be registered. However, for the purpose of the business and depending on the nature of the business, the sole proprietorship has to have a seal. He may be required to obtain a license from the local administration or from the health department of the government, whenever necessary.
Advantages
Easy to Form and Wind up
A sole proprietorship form of business is very easy to form. With a very small amount of capital, you can start the business. There is no need to comply with any legal formalities except for those businesses which required license from local authorities or health department of government. Just like formation, it is also very easy to wind up the business. It is your sole discretion to form or wind up the business at any time.
Better Control
In sole proprietorship business, the proprietor has full control over each and every activity of the business. He is the planner as well as the organiser, who co-ordinates every activity in an efficient manner. Since the proprietor has all authority with him, it is possible to exercise better control over the business.
Flexibility in Operation
The sole proprietor is free to change the nature and scope of business operations as and when required as per his decision. A sole proprietor can expand or curtail his business according to the requirement. Suppose, as the owner of a bookshop, you have been selling books for school students. If you want to expand your business you can decide to sell stationery items like pen, pencil, register, etc. If you are running an STD booth, you can expand your business by installing a fax machine in your booth.
Limitations
Limited Capital
In sole proprietorship business, it is the owner who arranges the required capital of the business. It is often difficult for a single individual to raise a huge amount of capital. The owner’s own funds, as well as borrowed funds, sometimes become insufficient to meet the requirement of the business for its growth and expansion.
Limited Size
Insole proprietorship form of business organisation there is a limit beyond which it becomes difficult to expand its activities. It is not always possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit.
Unlimited Liability
In case the sole proprietor fails to pay the business obligations and debts arising out of business activities, his personal properties may have to be used to meet those liabilities. This restricts the sole proprietor from taking risks and he thinks cautiously while deciding to start or expand the business activities.
