Sole proprietorship is the simplest and the oldest form of business organization. It is old as the civilization (society) itself. “A sole proprietorship is a unit whose ownership and management are based on one person. The individual assumes all risk of loss or failure of the enterprise and receives all profits from its successful operations.” It has some characteristics, advantages, and disadvantages mentioned below. OR according to my opinion “if any individual perform his/her legal activity to earn profit single handedly is known as sole proprietorship.”
Following are the characteristics of sole proprietorship.
1. Single ownership:
The most important characteristic of sole proprietorship, a single person owns it. The person can become the owner of the business if provides necessary capital.
2. Legal entity:
It has no separate entity in the eye of law. The owner and the business are not separate from each other. The life of the business depends upon the life of the owner.
In it only one person provides the whole capital. The owner provides the necessary capital for the commencement of business. If additional funds are required for running the business he is free to borrow for friends and relatives. He can also borrow from commercial banks also.
4. Unlimited Liabilities:Its liabilities are unlimited. It means his business property and the personal property is liable to his personal debts.
5. Management and control:
It manages and controls the whole affairs of the business independently. He is not bound to consult any one to take any decision.
The sole trader gets all the profits of the business and no one shares in the profits.
He has to bear all the risks alone. As he is the only owner of the business so that is why, he has to face all the risks.
8. Limited operations:
The business can be done within the limited areas because of limited resources. His managerial abilities are also limited.
The formation and termination of sole proprietorship are free from govt. regulations. It can be started and terminated at any time by the proprietor.
Its duration depends upon the life and capacity of the owner.
11. Relationship with customers:
He is closely attached with customer and knows the tastes of his customers and provides them necessary goods, which they need.
12. Ease dissolution:
The dissolution of the business is very easy because there is only one person is the owner and there are no legal formalities to wind up the business.
1. Ease formation:
It is very ease to form. There are no legal formalities like registration to start the business. It can be started at anytime and anywhere.
2. Freedom of action:
There is no specific law to control and manage the working of the business. So the owner can make any kind of actions that he thinks for the betterment of the business. He is not bound to consult anybody.
3. Quick decision:
One-man business is the best business to take quick decisions. As there is no need to consult any person, so the sole trader can take quick decisions on all important issues.
4. Entire profit:
As there is no other partner in the business he the only owner of the whole business that is why he will enjoy the entire profit of the business.
5. Personal interest:
The sole proprietorship is one-man show and as he invest the whole capital to start the business so that the owner will give his total attention to the business.
6. Simple/ease transferability:
It is small in size and nature if at one place the trader is not satisfied he can move to other place easily. He can transfer his business from one location to another location very easily.
7. Flexibility in operations:
It is more flexible than partnership and company in operations. There are no legal formalities for changing the nature of the business. The trader has absolute control over the affairs of his concern.
8. Credit standing:
The trader has high credit standing among the creditors. The liability of the owner is unlimited. The creditor have legal right to cover their claims from the business and personal property of the owner that is why the feel secure in giving the credit to the sole trader.
9. Low cost of starting:
To start the business under sole proprietorship the cost is very low as the size of the business is very small as compared with partnership and company.
It is very economical in every sense. The owner has to pay nothing to the others and retain the entire profit in his pocket.
11. Business secrecy:
A sole trader, being the organizer himself, maintains a high standard of secrecy of profits, in technique of production, special formula, etc.
12. Tax advantages:
He enjoys the tax advantages over the other forms of business. He has to pay tax only on personal income only not on the business separately.
13. Social benefits:
As the size of the business is very small and all the customers of the area know to him. He will take care of that customers and customer as well to the business and the owner. They will satisfy with business and the nature of the business.
The sole trading business provides careers to the large number of persons with small means.
15.Less chances of loss:
There are very less chances of loss in it, because the owner will pay his total attentions to the business and try his best to improve the condition of the business.
16. Direct link with customers:
Same as in relationship with customers
17.Free from restrictions:
It is free from all kinds of restrictions and the government does not interfere in the business. There are no special formalities to form and windup to business.
18. Ease dissolution:
It is very ease to dissolute. There are no legal formalities to wind up the business. It can be ended at anytime and anywhere.
1. Limited capital:
In this form of business only one person is responsible for the supply of the capital.
2. Limited size of business:
Size of the business depends upon the capital more capital large size of the business less capital small will be the size of the business. So in sole trader the capital is limited or you can say small that is why the size of the business is small.
3. Limited chances of growth:
As the size of the business is very small and the nature of the business does not allow to grow up quickly. That is why; there are limited chances of growth in it.
4. Limited life:
Any uncertain event in the personal life of the sole trader can disturb the smooth running of the business.
5. Limited expansion:
A successful business grows in size. Due to limited managerial abilities and limited capital the trader cannot expand the business beyond a certain point.
6. Limited abilities:
As there is only one owner of the business and there is single managerial view in the business. He will able up to a certain level then there is possibility of lack management.
7. Lack of public confidence:
It does not enjoy public confidence due to lack of advertisement. Its activities are limited so public cannot be aware of the activities.
8. Lack of skilled person:
A business can be highly reputed with the highly skilled labor or you can say skilled persons, as it is one-man show, so there is always a deficiency of skilled persons in sole proprietorship.
9. Lack of rules and regulations:
There is and other deficiency in sole proprietorship which lack of rules and regulations. There is no rule in it so there are more chances of negligence in any terms.
10. Lack of management abilities:
In sole trader ship one man is the owner of the business he has a limited management abilities to run the business affairs.
11. Unlimited Liabilities:
In sole proprietorship the liabilities of the owner is unlimited. He has to do all his works to run the business, because he is the only person to manage the business single handedly.
12. Entire loss:
As there is no other partner in the business he the only owner of the whole business that is why he will bear the entire loss of the business.
13. Unsuitable for big business:
It not suitable for big business because there are all necessary things, which are required for it, are limited e.g. capital, size, nature etc.
14. Chances of wrong decision:
As the decision making authority in sole trader ship is one he does not consult with any one before taking any decision. So there is possibility of wrong decisions.
15. Difficulty in borrowing:
The sole trader has to face problems if he needs some money to run the business because lack of public confidence.
16. Week bargaining position:
He finds no control over the market as the buyers and sellers due to limited capacity. Thus he may become an easy victim (sufferer) of any change in the market condition.