Sole Proprietorship

A sole proprietorship (also called sole trading concern) is a business owned, financed, managed and controlled by a single individual who alone enjoys all the profits and bears all the losses. It is the oldest, simplest and most common form of business, seen everywhere in small shops, salons, bakeries, repair services and small workshops.

Features

• Single ownership — one person supplies the whole capital and owns the business.
• No separate legal status — the owner and the business are treated as one; the firm has no identity apart from the proprietor.
• Unlimited liability — if the business assets cannot clear its debts, the proprietor's personal property (house, savings) can be used to pay them.
• Sole management and control — the owner takes every decision himself and is his own boss.
• No sharing of profit — the proprietor keeps 100% of the profit and absorbs 100% of the loss.
• Minimum legal formalities — no compulsory registration; only a local licence may be needed.
• Limited continuity — the death, insolvency or illness of the owner can end the business.

Merits

• Easy formation and closure — almost no legal formalities or cost.
• Quick decisions — one person decides, so there is no delay.
• Full control and direct motivation — the owner keeps all the profit, so he works hard.
• Personal touch with customers — the proprietor knows his customers and their tastes.
• Business secrecy — accounts and trade secrets need not be published.
• Flexibility — the line of business can be changed easily.

Limitations

• Limited capital — one person's savings and borrowing power are small, so the business stays small.
• Unlimited liability — personal property is at risk, which discourages expansion. …