Sole Proprietorship

'Sole' means single and 'proprietorship' means ownership. It means only one person or an individual becomes the owner of the business. Thus, the business organization in which a single person owns, manages and controls all the activities of the business is known as sole proprietorship form of business organization. The individual who owns Business Studies and runs the sole proprietorship business is called a sole proprietor or sole trader. A sole proprietor pools and organizes the resources in a systematic way and controls the activities with the sole objective of earning profit. Is there any such shop near your locality where a single person is the owner? Small shops like vegetable shops, grocery shops, telephone booths, chemist shops, etc are some of the commonly found sole proprietorship form of business organization. Apart from trading business, small manufacturing units, fabrication units, garages, beauty parlors, etc, can also be run by a sole proprietor. This form of business is the oldest and most common form of business organization. According to J. K. Hanson, Sole proprietorship is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of enterprise and for the management of the business.

Characteristics of Sole Proprietorship

The following are the main characteristics of a sole proprietorship:

Single ownership
The most important characteristics of sole proprietorship are that the ownership management and control of the organization is vested with that individual only.

Capital contribution
In this form of business organization, the capital is contributed by the sole proprietor from his own resources. If he requires more finance, it may be borrowed from his friends and relatives. Thus the invite burden

of capital requirement for this business is the sole responsibility of the owner. He may arrange it from its own or by borrowing of his own risk.

No separate legal existence

No distinction is made between the enterprise and its owner and both are looked upon as one any same person. Death or insolvency of the sole proprietor brings his business to an end.

One-man control
The sole proprietor is personally responsible for the control and management of enterprise. There is no interference from any person in the management. He has full authority to take decisions for guiding the destiny of the enterprise. Thus, sole proprietorship is a one-man show.

Unlimited liability
The liability of a sole proprietor is always comprehensive and unlimited. The personal property of the proprietor would also be used to pay off the debts and loans of any incurred from the outsider if the business assets one insufficient to meet such of outsiders in case liabilities of the enterprise cannot be paid out of assets of the enterprise. This provides a check on the reckless actins of the sole proprietor.

Limited area of activities

As a result of limited finance and managerial ability, the sole proprietor has a limited area of operation. Unlimited liability also restricts the proprietor from taking bold decisions and expands its area of operations.

No legal formalities
There are no legal formalities in order to start a sole proprietor form of business. Anybody and everybody can start the business any time any everywhere so also they can dissolve the same as per their wishes. Because it is subject to minimum legal formalities and government restrictions but full delineation of sole trader.

Freedom of line of business

The sole proprietor is free to select any business of his choice. It provides an excellent opportunity for self-employment, especially for those who have limited amount of finance. He can easily switcher and expand its business activities. He has the liberty to decide everything of his own.

Advantages of Sole Proprietor Form of Business

Easy formation
The formation of sole proprietorship business is very easy and simple. No legal formalities are involved for setting up the business excepting a license or permission in certain cases. The entrepreneur with initiative and certain amount of capital can set up such form of business.

Direct motivation
The entrepreneur owns all and risks all. The entire profit goes to his pocket. This motivates the proprietor to put his heart and soul in the business to earn more profit. Thus, the direct relationship between effort and reward motivates the entrepreneur to manage the business more efficiently and effectively.

Better control
The entrepreneur takes all decisions affecting the business. He chalks out the plan and executes the same. His eyes are on everything and everyone. There is no scope for laxity. This results in better control of the business and ultimately leads to efficiency.

Promptness in decision-making
When the decision is to be taken by one person, it is sure to be quick. Thus, the entrepreneur as sole proprietor can arrive at quick decisions concerning the business by which he can take the advantage of any better opportunities.

Secrecy
Each and every aspect of the business is looked after by the proprietor and the business secrets are known to him only. He has no legal obligation to publish his accounts. Thus, the maintenance of adequate secrecy leaves no scope to his competitors to be aware of the business secrets.

Flexibility in operations

The sole proprietorship business is undertaken on a small scale. If any change is required in business operations, it is easy and quick to bring the changes.

Scope for personal touch

There is scope for personal relationship with the entrepreneur and customers in sole proprietorship business. Since the scale of operations is small and the employees work under his direct supervision, the proprietor maintains a harmonious relationship with the employees. Similarly, the proprietor can know the tastes, likes and dislikes of the customers because of his personal rapport with the customers.

Inexpensive formation and management

The cost of formation of a sole proprietorship is the minimum because no cost is involved in its formation excepting the license fee in certain cases. The management of the business is also inexpensive as no specialists are normally appointed in various functional areas of the business which is the added advantages.

Free from Government control

Sole proprietorship is the least regulated form of business. Regulated laws are almost negligible in its formation, day-to-day operation and dissolution.

Easy dissolution
Like that of formation, the dissolution of the sole proprietorship is also very easy. Since the proprietor is the supreme authority and no regulations are applicable for closure of the business he can dissolve his business any time he likes.

Socially desirable
New and small entrepreneurs can take up business on small- scale basis. There will be no scope for concentration of wealth in few hands. Sole proprietorship continues its operation in almost each and every area of business activity and caters to the need of the society. Further, it provides ample opportunities for large-scale self-employment for rural and less skilled personnel. Thus, it is socially desirable.

Disadvantages of Sole Proprietor Form of Business

The sole proprietorship business is not free from criticism. It suffers from certain limitations and drawbacks, because of its very nature and scope of operations. These points may be duly taken care of while entrepreneur adopting this mode of business.

Limited resources
The financial resources of any small entrepreneur as an individual is limited. He mainly finances from his own savings or borrows from financial institutions, friends and relatives as per his capacity. Thus, limited resource is the major drawback of this form of business.

Limited managerial capability

Modern business requires updated managerial skills in each and every sphere of activity. We cannot hope a single individual to possess all the managerial talents necessary to carry on a business efficiently. The limited financial resources of the sole proprietorship is a hindrance to hire the services of managers with expertise in different areas, thereby the growth of the business.

Unlimited liability
Since the liability of the sole proprietor is unlimited, the private properties of the proprietor is also at risk. When the business fails, the private properties of the owner are utilized to pay off the business debts. Thus, the entrepreneur must have to look this aspect carefully.

Uncertainty of continuity
The continuity of the business is uncertain because the business may come to an end due to the incapacity or death of the proprietor. Even if at all the business passes on to the successor of the proprietor, it is unlikely that they may posses the business acumen like that of the proprietor. The discontinuance of the business is a social loss.

Less scope for economies of large-scale

The economies of large-scale operation is enjoyed only by a large-scale enterprise, which the sole proprietorship business normal lacks. Therefore, there is less scope for availing the economies of large-scale.

Not suitable for large-scale business

The limited financial resources, limited managerial capability of the proprietor, risk to the private property etc. makes the so proprietorship business unsuitable for large-scale business. This system of business can not afford for large-scale operation

Difficult to maintain personal contact

Even though there is scope for personal touch in sole proprietorship business, it is unlikely to happen when the business is undertaken in different areas. It is not so easy on the part of the proprietor to have personal contact with customers and suppliers at the same time.

Suitability of Sole Proprietorship

This form of organization is best-suited to the following types of business.

Small capital requirements

Business where capital involvement is very small and managerial talent has hardly and effects on performance are best suited to this form of organization. A business must be small indeed to permit the owner to know and the supervise everything.

Artistic goods and personal attention

Business which produces artistic of special type of goods and requires personal attention of the proprietor are best suited for this form or organization. Under sole proprietorship, individual skill and talents can bring.

Personal services

Personal services of professional people such as accountants, solicitors, doctors, architects etc., can be successfully rendered under this system.

Computer services
Business which requires small machines and demands intelligent handling such as computer service, are best suited to sole proprietorship.

Business requiring cooperation

Business which requires spirits of co-operation are better managed under sole proprietorship viz., a tailoring shop.

Sole Proprietor Survival Strategies

It is a fact of life that we all get older and along with getting older we face the deleterious effects of aging. Particularly in construction, the knees, wrists, forearms, elbows, shoulders and feet start to rebel if we tax them too much. The truth be known we own most of that. For years we didnt warm-up before beginning work, we didnt wear knee pads and we didnt ask for help when picking up or carrying heavy things. There were many times when we used the wrong tools for the job because thats what we had handy and we often didnt bother with ear plugs, respirators, safety glasses, dust masks and gloves for that matter. We just forged ahead and got the job done. Now, many of us are feeling the pain and we are not alone. The U.S. is entering a prolonged period the likes of which has never been seen. Various estimates report the birth bubble that occurred between 1945 and 1964 produced 76 million children that today account for 28

percent of the population. We are referred to as the baby boomers but theres nothing baby and certainly nothing booming about us anymore. Were just getting older and various types of people are trying to figure out how to sell stuff to us and pay for the staggering health care costs that are coming down the pike. Meanwhile huge numbers of us are still working but looking down the road and wondering what retirement is going to end up being like. Each of you has to take it from there and figure out what direction you should go in.

If you love what youre doing, then keep doing it. Find ways to ease the burden of things you are finding to be more challenging. Suppose you decide that what you need is a helper. Think about the things that person could help you do, feel what it would be like to NOT have to run down three flights of stairs to get something from the truck. Fix that in your mind and pay close attention as you go through your days until the perfect person shows up. Then, hire them, pay them fairly, treat them well, and feel how great it is to not have to take the generator out of the truck all by yourself. If you hate book work then outsource the books. The time and energy you save will come back to you tenfold in new business because you will be focusing on the things that you do best. If you are weary of what you are doing then select a time when you can most afford to put things on hold. Do some creative scheduling so you open up a window of opportunity for two weeks away from the business, and then get away. Even if you just stay home, watch TV and go fishing, take some time to feel what its like to NOT be building. If after two weeks youre feeling antsy and you have renewed vigor then take the advice above. Instead, if you are feeling uninspired and dont want to get back at it then start planning for a different future. Take account of all your skills. Consider older skills that you havent used for awhile. Think about what you would rather be doing. Dont let what youve been doing become the ONLY thing you can do. Then, imagine doing the new thing, feel what it would be like, and step out of that corner youve been in. Above all, banish fear and assume (know) you will succeed.

Reference:
Sole Proprietorship
http://www.nos.org/Secbuscour/cc06.pdf

Characteristics of Sole Proprietorship

http://www.publishyourarticles.org/eng/articles/what-are-the-characteristics-of-soleproprietorship-form-of-business.html

Advantages and disadvantages of Sole Proprietor Form of Business

http://www.preservearticles.com/201101153393/advantages-and-disadvantages-of-soleproprietor-form-of-business.html

Suitability of Sole Proprietorship

http://www.publishyourarticles.org/eng/articles/which-business-are-most-suitable-for-soleproprietorship-form-of-organization.html

Sole Proprietor Survival Strategies

http://constructioninformer.com/2008/01/04/sole-proprietor-survival-strategies/