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