Q.(a) Explain the characteristics of sole trading business.

(a) A sole trader owns, controls and finances the business alone, enjoys all profits, bears unlimited liability and has no separate legal identity. (b) A valid contract needs offer and acceptance, an intention to create legal relations, lawful consideration, competent parties and free consent (with a lawful object).

(a) Characteristics of sole trading business:

1. Single ownership — the business is owned by only one person, who provides the whole capital.
2. One-man control and management — the sole trader alone manages, takes all decisions and runs the business.
3. Unlimited liability — his liability is unlimited; if business assets are not enough to pay debts, his private property can be used.
4. No separate legal entity — the owner and the business are one and the same in the eyes of law.
5. Sole enjoyment of profits and risks — he alone takes all the profits and bears all the losses and risks.
6. Minimum legal formalities — it is easy to start and close, with few legal requirements.
7. Lack of continuity — the business ends with the death, insolvency or illness of the owner.

(b) Five essentials of a valid contract (Indian Contract Act, 1872):

1. Offer and acceptance — there must be a lawful offer by one party and a lawful acceptance of it by the other, creating an agreement.
2. Intention to create legal relationship — the parties must intend that the agreement should be legally binding; social or family agreements are not contracts.
3. Lawful consideration — there must be 'something in return' that is real and lawful. …