Q.Define sole proprietorship and discuss its merits and demerits.

A sole proprietorship (also called individual proprietorship) is a one-owner business. The proprietor supplies the capital, manages operations, takes every decision, enjoys all profits and bears all losses with unlimited liability. It is easy to form and gives full control and secrecy, but suffers from limited funds, unlimited liability and lack of continuity.

Meaning

A sole proprietorship is a form of business organisation in which a single individual owns, manages and controls the business. There is no legal distinction between the owner and the business — the owner alone is entitled to all profits and is personally liable for all debts. This is the most common form of business in India for small shops, workshops and service providers, and it is a core topic in the AP Intermediate 1st-year Commerce syllabus (which aligns closely with the NCERT/CBSE commerce curriculum).

Features

• Single ownership — one person owns the entire business.
• No separate legal entity — owner and business are the same in the eyes of law.
• Unlimited liability — the owner's private assets can be used to pay business debts.
• Sole risk bearer and profit taker — the proprietor alone keeps all profit and bears all loss.
• No sharing of control — all decisions rest with the owner.
• Minimal legal formalities — little or no registration is required.

Merits

1. Easy to form and wind up — few legal formalities and low cost.
2. Quick decision-making — the owner need not consult anyone, so decisions are prompt.
3. Full control — the proprietor directly supervises the whole business.
4. Direct motivation — the owner keeps all profit, which is a strong incentive.
5. Business secrecy — accounts and trade secrets need not be disclosed to anyone.
6. Personal touch with customers and employees — builds goodwill and loyalty.
7. Flexibility — easy to change the line of business or shift location.

Demerits

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