what do you understand by sole proprietorship? outline the features.
Answers
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The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name, such as Nancy's Nail Salon. The fictitious name is simply a trade name--it does not create a legal entity separate from the sole proprietor owner.
FEATURE
One of the great features of a sole proprietorship is the simplicity of formation. Little more than buying and selling goods or services is needed. In fact, no formal filing or event is required to form a sole proprietorship; it is a status that arises automatically from one's business activity.
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Answer:
Sole proprietorship may be defined as under:
Sole proprietorship is that form of business organisation; which is owned and operated, at the initiative and risk of only one individual-called the sole proprietor.
Explanation:
Following are the salient features of the sole-proprietorship, as a form of business organisation:
ADVERTISEMENTS:
(i) There is individual ownership, in sole-proprietorship. One man alone-called the sole- proprietor is the owner of all assets and resources of business.
(ii) The sole proprietor is solely responsible for the management of his business enterprise. The sole proprietor may engage the services of professional managers; yet it is he who is responsible for regulating the decisions and actions of hired managers.
(iii) The sole proprietor is solely responsible for arranging finances for his business. He has to contribute capital from his own sources. He may also borrow money from friends, relatives and others-at his personal risk. Because of limited financial capacity of one individual (in majority of cases, of course), the size of one-man business is usually limited.
ADVERTISEMENTS:
(iv) In one man business (i.e. sole proprietorship), there is independent decision-making by the sole proprietor. He need not consult with others; while taking decisions for his own business.
(v) The liability of sole proprietor is unlimited, i.e. his personal properties may be utilized for payment of business debts; in case assets of business are insufficient to pay business liabilities, in full.
(vi) Secrecy of business affairs can be easily maintained. The sole proprietor need not disclose secrets of his business to anyone.
In fact, sole proprietorship is the exclusive form of business organisation, in which complete secrecy of business affairs is possible.
ADVERTISEMENTS:
(vii) There is no sharing of profits, in sole proprietorship. All the profits of business belong only to the sole proprietor. However, even all the losses of business fall on him exclusively.