Explain sole proprietorship (single owner) in detail

Que: Explain sole proprietorship (single owner) in detail.

Answer:

Sole Proprietorship :

A sole proprietorship is a one-man business organization.

It is the type of entity that is fully owned and managed by one natural person (not a legal person/entity) known as the sole proprietor.

It is the simplest form of business organization and the ideal choice to run a small or medium-scale business.

Features of Sole Proprietorship:

Lack of Legal Formalities: A sole proprietorship does not require incorporation or registration of any kind, only a license is required to carry out the desired business.

Liability: Since there is no separation between the owner and the business, the liability of the owner is also unlimited.

Risk and Profit: The owner is the only risk bearer in a sole proprietorship. So he must bear the full risk in exchange for enjoying full profits.

No Separate Identity: In legal terms, the business and the owner are one and the same.

Continuity: Death, retirement, bankruptcy, insanity, imprisonment, etc will have an effect on the sole proprietorship. In most such cases, the proprietorship will cease and the business will come to an end.

 Advantages of Sole Proprietorship:

Easy to Setup: A sole proprietorship does not require incorporation or registration of any kind, only a license is required to carry out the desired business.

Complete Control: A proprietor will have complete control of the entire business.

Confidentiality: Law does not require a proprietorship to publish its financial accounts or any other such documents to any members of the public. This allows the business a great deal of confidentiality.

Maximum Incentive: The owner derives maximum incentive from the business. He does not have to share any of his profits.

Disadvantages of Sole Proprietorship:

Unlimited Liability One of the biggest limitations of a sole proprietorship is the unlimited liability of the owner.

Limited Capital: Own personal savings and money he can borrow may not be enough to expand the business. Banks and financial institutions are also wary of lendings to proprietorships

Life Cycle: The life cycle of a sole proprietorship is undecided and attached to its owner.

Limited Managerial ability: A sole proprietor cannot be an expert in all the fields of the business. This may lead to the business suffering from mismanagement and poor decisions.


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