A sole proprietorship is a form of private enterprise. It is owned, managed, financed and controlled by an Individual. The individual is termed as a sole trader or sole proprietor.
Sole proprietorship business is easy to establish and is subject to moderate regulations. Any person who is competent may set up his own business.
Definition of Sole Proprietory organisation:
1. James Stephenson: A sole trader is a person who carries on business exclusively by and for himself.
2. James Lundy: The proprietorship is an informal type of business owned by one person.
3. Dr John A. Shubin: Under the sole proprietorship form of ownership a single individual organises, has little too and operates the business in his own name.
4. R.S. Daver: A sole trader is a person who carries on business on his own, i.e without the assistance of a small partner.
5. Charles S. Jippets: The proprietorship is that form of business organisation which is owned, managed and controlled by a single individual who receives all the profits and risks all the property in the success or failure of the enterprise.
Features of Sole Proprietorship:
The main features are:
1. Single ownership: Here the owner of the business is a single person. This makes the formation of business easy and simple.
2. Capital Contribution: Capital is provided by the proprietor himself from his own resources.
3. Management and control: The proprietor himself manages and controls everything in the business.
4. Legal Status: A sole proprietorship business has no separate legal status apart from its proprietor. The owner and the business are inseparable.
5. Unlimited liability: In Sole trading concern, the liability is unlimited. The proprietor bears all the losses arising from the business.
6. Limited area of operation: Sole trading business is generally done within the limited area because of the limited resources and limited management ability of the sole trader.
7. Secrecy: This is also an important feature of a sole proprietorship. All the decisions are taken by the proprietor himself.
Advantages of Sole Proprietorship:
1. The facility of Formation: It is easy to form and simple to run. Anyone with a minimum amount of capital, ability and mind to do business may start such a business without statutory obligations.
2. Quick Decisions: In all matters, he can take a quick decision as he is the Supreme judge in his business.
3. Maintenance of Secrecy: The success of a sole trader is not known to others. He can maintain almost secrecy in all matters.
4. Flexibility: Sole trading is more flexible than other forms of business. He is able to introduce any changes quickly so as to meet the employees.
5. Direct supervision and control: The proprietor generally gives individual attention and care to the business by direct supervision.
6. Sole claim on profits: A sole trader is the sole recipient of profits of the business. This factor stimulates him to work hard and devote these energies for the successful operation of the business.
7. Inexpensive Management: Direct supervision of employees activities in sole trading brings in cost reduction.
8. Minimum govt. Regulations: The formation and dissolution of the business are not subject to any law in this form of organisation.
Disadvantages of Sole Proprietorship:
1. Limited Capital: The resources of an individual are generally limited and as such, a sole proprietorship cannot obtain the requisite amount of capital necessary for a large business.
2. Limited Managerial Ability: An individual is not likely to be an expert in all matters of business. Thus, sole traders ability to manage his business affairs is limited.
3. Unlimited liability: The liability of the sole proprietor is unlimited. It is not only the assets of the business which are liable but his private property is also liable for the debts of his business.
4. Uncertainty of Continuity: There is no guarantee that sole trading concern will be continued, because it may be closed down in the case of loss or the death of the proprietor.
5. Hasty Decisions: In a sole proprietorship, the decisions are taken by TBD owner. So there is a possibility of taking a wrong decision and it may be of great harm to the business.
6. No large scale Economics: Since the scale of operation is relatively small, the sole proprietor cannot avail the benefits of large scale production.
Business suitable Under Sole Proprietorship:
The sole proprietorship business is suitable in the following fields:
1. Where a small amount of capital is required.
2. Where fashion changes or where demand and supply are of seasonal nature.
3. Where markets are localised in character.
4. Where business affairs are simple in nature.
5. Where individual taste and fashion is required to be satisfied.
6. Where risk is not heavy.
7. Where a prompt decision is needed.
8. Where limited managerial talent is required.