Sole Proprietorship

Topics: Business law, Legal entities, Sole proprietorship Pages: 4 (572 words) Published: July 22, 2014
Sole Proprietorship
It refers to a form of business organisation that is owned and controlled by one individual. He is the only risk bearer and the profit recipient
The word ‘sole’ implies only and the word ‘proprietor’ refers to owner. Hence a sole proprietor is the only owner of the business.

FEATURES

1. Formation and Closure –

Hardly any legal formalities are required to start.
But in some cases licence might be required.
Closure can be done easily.

Hence it is easy to form and close the business

2. Liability-

They have unlimited liability.
The owner is responsible to pay the debts. But, in case the assets of the business are not sufficient to meet the requirement, he has to sell his personal assets to repay all his debts.

3. Sole Risk Bearer & Profit Recipient-

The risks of the business are all borne by the owner
The profit is enjoyed fully by him when the business is successful

Hence he receives all the profit as a reward for bearing all the risks to earn the profit.

4. Control-

The owner runs all the business activity and hence makes all the decisions.

5. No Separate Entity-

Under sole proprietorship, the owner is not considered to be separate and distinct from the business. (By law)

Hence, owner is held responsible for all the activities of the business.

6. Lack of Business Continuity-

Since owner and business are one, the death, imprisonment, etc. of the owner will have a huge effect on the business which may lead to its closure.

MERITS

1. Quick Decision Making-

Freedom of decision making.
Can make decisions as and when required as there is no one to consult. Leads to timely capitalisation of market operations as and when they arise

2. Confidentiality of Information-

Since he makes all the decisions, he is able to maintain confidentiality and secrecy of information.

3. Direct Incentives-

He gains all the profit for his efforts.
Does not need to share profits

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