You might have heard people talking about business of a person or a person being a partner in a business. When a business owned by a person or co-owned by few persons we may call it as Proprietary concerns. Full ownership & control of the business under this category remains with one or few individuals. The business or firm’s name does not have any legal status or existence.

Sole Proprietorship

This form of business is fully owned by one person and this single person runs the show, may be with the help of family members or relatives or may be employing one or more persons to assist. . He or she has to arrange capital for the business and he alone is responsible for its management. He or she is therefore, entitled to the profits and has to bear the loss of business, however, he/she can take the help of family members and also make use of the services of others such as a manager and other employees. This type of business organisation is also called single ownership or single proprietorship.

Any person who is competent to enter into contract can start a sole proprietary concern. As per law a person, who has attained the age of majority, of sound mind and who is not disqualified (for a period) by insolvency law or any other law, can enter into a contract. Small factories and shops are often found to be sole proprietorship organisations. It is the simplest and most easily formed business organization. This is because not much legal formality is required to establish it. The sole proprietor is entitled for all the profits and shall also bear all the risks and losses.

Advantages

• Easy formation with formal license only
• Freedom available to the sole proprietor to take action enables quick decisions and prompts action. There is no need to consult anyone.
• Personal contacts with customers & employees
• Business secrecy can be maintained and hereditary business is enabled
• There is direct relationship between the economical & efficient effort and rewards. Hence costs are also controlled effectively.
• Since the business is conducted alone or with a tight family structure, there is no necessity for formal organizational structure and hence absolute flexibility is there.
• Business Tax procedures are relatively simple with all income from business getting reported in the owner’s individual tax return. The owner can take maximum benefits of tax concessions given for individuals

Disadvantages

• The capital structure (capital and borrowings) of the business is limited to personal wealth and credit standing of the proprietor
• Limited managerial and technical skills
• The owner is responsible for all the debts and the liability is unlimited dipping into personal assets like house property, vehicles, furniture, appliances etc
• Since the business is dependent upon the health & wealth and life of the owner, there is no continuity
• This form of business is suitable where personal skills & contacts are important.

Features of Sole Proprietorship:

The important features of a sole-proprietary organization include the following

• Individual Initiative: One person is the owner in a sole proprietary form of organisation.
• Risk Bearing: The proprietor is the sole beneficiary of profits in this form organisation. If there is a loss he alone has to bear it. Thus the risks of business are borne by the proprietor himself.
• Management and control: Management and control of this type of organisation is the responsibility of the sole proprietor. He may, however, employ a manager or other people for the purpose.
• Minimum government regulations: The government does not interfere with the working of the sole proprietorship organisation. However, they have to comply with the general laws and rules laid down by government.
• Unlimited liability: The sole proprietor has to bear the losses and is responsible for the liabilities of the business. If the business assets are not sufficient to meet the liabilities, he may also have to sell his personal property for that purpose.
• Secrecy: All important decision taken by the owner himself. He keeps all the business secrets only to himself.