SOLE PROPRIETORSHIP

Sole proprietorship is a business which is owned, and usually managed by one person.

CHARACTERSTICS OF SOLE TRADER

The main characteristics of sole proprietorship are the following :

1. Single ownership : A single-owner concern is owned and run by only one person. It is he who takes all the risk of business. He provides both financial capital and manages the business himself.

2. No separate identity : The sole proprietor owns every asset of the business and is liable for every debt or loan. Thus, the owner is identified with the business. He has no separate legal status or entity.

3. Seed capital : Initial finance, called seed capital, is provided by the owner himself from his personal sources.

4. Formation : It is fairly easy to start a sole proprietary concern without undergoing any legal formalities.

5. Risk bearing : The sole proprietor has to bear all the risks associated with his business.

6. Unlimited liability : The owner of a sole proprietor form  of enterprise is personally liable for the debts incurred by his firm and this liability is unlimited.

7. Management and control : In the business, management and control are vested in one person.

8. Continuity : The life of a sole tradership firm depends solely upon what happens to its proprietor.

FORMATION OF SOLE TRADER BUSINESS

Sole trader business is started at the initiative of a single individual. He prepares the business plan or the blueprints of his prospective venture and makes arrangement for the necessary finance or seed capital.

OBJECTIVES OF SOLE TRADERING BUSINESS

1. To create self-employment opportunities : Sole trading business gives people an opportunity to create self-employment opportunities by being their own bosses and work with dignity and self-respect by having full-say and complete control over the business as owner-entrepreneur.

2. To fruitfully utilise surplus funds : A person having surplus liquidity may start sole proprietorship business to make productive use of his idle funds.

3. Independent living : Sole trading business offers ample opportunity for a person to make independent living and enjoy the psychic satisfaction and pride of ownership.

4. To serve and please customer : By operating at the grass-root level, a sole trader is involved in direct interaction with his customer.

5. Equity : Sole trading business helps to promote equity or distributive justice by ensuring fair share of income and wealth among a large number of people.

6. Support to large business : Sole proprietorship units supply inputs and provide and ancillary services to big firms as is mostly found in china, Korea and India.

MERITS OF SOLE PROPRIETORSHIP

Sole proprietorship are the easiest kinds of business to start.

A sole proprietorship concerns offers the following advantages to its owner : 

1. Ease of starting and ending the business : The establishment of a sole tradership concern is fairly easy.

2. Being one's one boss : Working for others does not have the same excitement as working for oneself.

3. Pride of ownership : People who own and manage their own business take pride in their work. They deserve all the credit for taking the risks and supplying necessary goods and services.

4. Leaving a legacy : Owners can leave an ongoing business for future generations.

5. Retention of company profit : Owners not only keep the profits earned, but also benefit from the increasing value as the business grows.

6. No special taxes : All the profits of a sole proprietorship are taxed as the personal income of the owner and the owner pays the normal income tax on that company.

7. Flexibility of operations : Since the proprietor is the sole decision-taker and has no need to consult colleagues when policy are required, this type of organisation is extremely flexible and capable of quick and easy adjustment to changes taking place in market conditions.

8. Maintaining secrecy : It is easy to maintain secrecy in business. The affairs of such business are not made publicly known.

9. Operational efficiency : The strength of this type of organisation lies in the direct personal interest of the proprietor in the efficiency of his enterprise.

10. Self-employment : Sole proprietorship gives self-employment opportunities to persons of modest means having necessary professional skills.

DEMERITS OF SOLE PROPRIETORSHIP

1. Unlimited liability : Unlimited liability refers to the responsibility of business owners for all of the debts of the business.

2. Limited financial resources : Another disadvantage of this type of business is the strict limitation on its ability to acquire capital for expansion.

3. Management problems : A business can be efficiently run by professional managers.

4. Huge time commitment : Sole proprietors have little time to do anything else in life due to less overwhelming time commitment for running the business.

5. Few fringe benefits : The sole owner of a firm loses the fringe benefits which often come with working for others.

6. Limited growth : Expansion of a single-owner firm is slow and sporadic.

7. Limited life span : If the sole proprietor dies, become physically unfit, or retires the business ceases to exist.

8. Lack of specialisation : Since the sole trader takes all business decisions without consulting others, there is, at times, excessive pressure on him.

9. Uncertain failure : The future of a sole trader is uncertain.

10. Lack of stability : Finally, sole proprietorship is not a stable form of business for various reasons.

SUTABILITY

The one man control is the best in this world if that man is big enough to manage everything. Therefore, sole proprietorship is suitable form of organisation in the following cases:

(a) Where the market is local.

(b) Where personal attention to the needs and preferences of the customer is essential.

(c) Where fashions change very frequently.

(d) Where small amount of capital is required but personal skills are more important.

(e) Where quick decision and prompt action are necessary.

(f) Where risk involved is negligible.

SOCIAL UTILITY

The sole proprietorship form of business is socially desirable due to following reasons:

(a) It prevents concentration of economic power in few hands through a more equitable distributions of wealth in the society.

(b) It provides opportunity for self employment with limited investment.

(c) It offers employment to a large number of people in society.

(d) It facilitates the growth of cottage and small scale industries.

(e) It facilitates balanced regional development of the country.

EXPANSION OF SOLE PROPRIETORSHIP

1. Employment of paid Assistant- When the sole proprietorship employs a paid assistant, he has the following advantages and disadvantages:

ADVANTAGES

(a) Division of work

(b) No share in profits

(c) Complete control

(d) Secrecy

(e) Easy to dismiss

DISADVANTAGES

(a) Lack of motivation

(b) Lack of responsibility

(c) Problem of capital

(d) Competition

ADMISSION OF A PARTNER

ADVANTAGES

(a) Availability of capital

(b) Division of work

(c) Motivation

(d) Reduced risk

(e) Economy of costs

DISADVANTAGES

(a) Division of profits

(b) Loss of freedom

(c) Lack of secrecy

(d) Difficulty in removing partner

(e) Source of disputes

CAUSES FOR SURVIVAL OF SOLE TRADER

1. Human inertia

2. Personal motivation

3. Desire for independence

4. Nature of market

5. Need for personal attention

6. Nature of manufacturing process

7. ancillary industry

8. Retainer system