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Sole Proprietorship
and its Characteristics
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Introduction |
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The
individual proprietorship or sore proprietorship is
the oldest form of business organization. It is as old
as the civilization itself. Historically, it appears
that business started first with this form of organization.
It is the simplest and natural type of organization. |
Sole proprietorship is also called individual proprietorship,
or one man business. Sole proprietorship is a form
of business organization in which an individual introduces
his own capita), uses his own skill and intelligence
in the management of its affairs, assumes all the
risks of business and is solely responsible for the
results of its operations. He, thus, owns all and
risks all. The business is exclusively in the hands
of an individual. Most of the bakery, hardware stores,
service stations, barbers shop, doctor’s clinic,
service stations, beauty parlours, etc. are examples
of sole proprietorship.
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One
man business is usually small but it can be a large
as a steel mill or a departmental store depending upon
the resources available to the entrepreneur. Definitions
of Sole Proprietorship
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| Definitions
of Sole Proprietorship |
Some
of the important definitions of sole proprietorship
are as follows: |
| (1)
Paterson and Plowman |
A
sole proprietorship is a business unit whose ownership
and management ace vested in one person. The individual
assumes all risk of loss or failure of the enterprise
and receives all profits from its successful operation. |
| (2)
James Stephenson |
A
sole trader is a person who carries on business exclusively
by and for himself. He is not only the owner of the
capital of the undertaking but is usually the organizer
and manager and takes all the profits or responsibilities
for losses. |
| Characteristics
of sole proprietorship |
| The main characteristics
of sole proprietorship are as under- |
| (1)
Ownership |
The
business is owned by a single individual. |
| (2)
Management and control |
Being
small in size, it is managed by the owner himself. However,
he may have some paid workers to assist him. In any
Case, the ultimate control rests in his hands. |
| (3)
Finance |
The
necessary capital to run the business is provided by
the sole owner. However, he may borrow from other sources
such as friends or bank as need arises. |
| (4)
Risk |
The
proprietor himself bears all the risks. No body else
has any stake in the business. |
| (5)
Unlimited liability |
The
sole trader is personally liable for debts of the business.
The creditor can lay claim not only on his business
assets but also his persona! Property such as car, houses,
furniture etc to recover the loan. |
| (6)
Legal status |
In
law, the sole trader and his business are considered
as one, In other words, all the assets and liabilities
of the business are the personal assets and liabilities
of the proprietor. We can say that the owner and the
business exist together. In other words, the two are
considered as one in the eyes of Paw. |
| (7)
Relationship with customers |
The
sole trader tries to keep good relationship with his
customers. The customers are generally personally known
to the proprietor and their orders are higher valued. |
| (8)
No legal formalities |
The
sole trader can set up or close the lawful business
as and when he likes the operation of his business is
not governed by any special act or ordinance. |
| (9)
Ease of dissolution |
The
sole trading business is as easy to end or dissolve
as is its formation. The decision of the proprietor
alone ends the business. |
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